BMW has shocked the German auto industry by booking fewer sales than expected in China last year, forcing the Munich-based carmaker to provide high levels of compensation to its Chinese dealers for missed targets.
According to the Chinese dealers’ association, the company is paying €685 million ($818 million), which a spokeswoman confirmed to Handelsblatt. BMW will not comment on the figure, but does confirm an agreement in the precedent-setting conflict, over which Handelsblatt had already reported in December.
The settlement shines a light on the situation in the once booming market of China, and the dependence of foreign car manufacturers. After more than a decade of a robust growth, China has overtaken the United States as the largest auto market in the world. But the time of exorbitant expansion is over. Between 2001 and 2007, car sales still rose on average 35 percent per year. But from January until November of 2014, the annual increase was at just over 9 percent, clearly less than what BMW had hoped for.
The German car industry had become accustomed to the Chinese miracle. The Bavarians are expected sell about 450,000 cars from its BMW, Mini and Rolls-Royce brands in China this year, accounting for a quarter of the carmaker’s sales and ten times higher than in 2006. BMW doesn’t disclose the share of its profits in China, but analysts estimate that in 2013 already up to 30 percent of the operating profits of almost €8 billion possibly flowed from the booming business in the Asian market.