Volkswagen to offer $161M to China dealers amid rout

Bloomberg News

Volkswagen AG is offering financial assistance totaling 1 billion yuan ($161 million) to support some of its dealers in China as demand slows in its largest market, according to people with knowledge of the matter.

The funding will be paid to distributors selling VW brand cars made by the company’s joint venture with China FAW Group Corp., according to two people familiar with the plan, who asked not to be named because the discussions were private.

Volkswagen, the biggest foreign automaker by sales in China, is the latest company to extend financial subsidies to distributors hit by the slowing economy and a stock market that erased $4 trillion in market value in less than a month. BMW AG earlier this year agreed to pay subsidies to its distributors in China to help cover losses after retailers stopped ordering cars from the manufacturer.

“Dealers are facing some hardships,” Li Pengcheng, a spokesman for FAW-Volkswagen, said in a telephone interview Thursday, without confirming the amount of the funding. “Based on current situation, we will surely help them out.”

VW’s sales with its joint venture partner FAW fell 10 percent in the first six months of the year, according to data compiled by Bank of America Corp.

Auto sales in China fell for the first time in more than two years in June. VW and other carmakers have cut prices to defend market share as demand slows and domestic rivals lure increasingly value-conscious customers with cheaper sport utility vehicles.

Retail deliveries of cars, multipurpose vehicles and SUVs fell 3.2 percent last month to 1.43 million units, the China Passenger Car Association said Wednesday. Sales last fell in February 2013.