Report: Audi gives financial aid to China dealers

Bloomberg News

Audi AG is providing 1.2 billion yuan ($193 million) in financial aid to its dealers in China as demand for luxury vehicles slows in its largest market, according to people with knowledge of the matter.

The money will be paid out soon to distributors of the brand in China, according to two people familiar with the plan, who asked not to be named as the information isn’t public. The automaker also lowered its sales target for 2015 from 600,000 units to about last year’s level, the people said. It delivered 578,932 vehicles in China including Hong Kong last year.

“In an increasingly competitive market environment, Audi puts a strong focus on a financially healthy dealer network, guaranteed service quality and stable prices,” Audi China said in an e-mailed response, without confirming the subsidy or cut in sales target. “We steer the market in close alignment with our dealers.”

Audi’s subsidies follow that of Volkswagen AG, which agreed to give financial aid to some of its Chinese dealers earlier this month as vehicle demand slowed with the economy amid stock-market volatility. BMW AG and Toyota Motor Corp. also agreed to give their dealers aid to help cover losses earlier this year.

Dealers are banding together to demand lower sales targets and a bigger share of profits from automakers as demand wanes.

“The days of dealers having to beg the automakers for cars to sell are over,” said Lin Huaibin, a Shanghai-based analyst at IHS Automotive. “Probably other premium automakers will follow suit in the coming months and offer subsidies as well.”

Volkswagen offered dealers of its namesake brand 1 billion yuan, according to people familiar with the plan. It also cut prices on some of its vehicles and offered incentives to buyers.

Toyota, which missed its sales target last year, gave its dealers 1.24 billion yuan this year, to help them meet the costs resulting from excess inventory, according to the China Automobile Dealers Association. Renault SA’s China joint venture said in January the firm will offer its dealers more rebates and help improve their profitability, without providing details.

BMW agreed to pay its dealers 5.1 billion yuan to help cover losses after retailers stopped ordering cars from them, according to the association.

Audi’s China sales fell in May and June, dragging down first-half delivery growth to 1.9 percent. Despite the decline, Audi remains China’s best-selling luxury carmaker, ahead of BMW and Mercedes-Benz.