FOREIGN automakers in China may struggle to dictate sales goals in the future after dealers complained to the government that inflexible targets set during a market boom obliged them to buy too much stock and bear the brunt of a drop in demand.

    Automakers largely stuck to targets throughout 2014, selling cars to dealers on schedule. But dealers slashed retail prices and booked losses as sales growth in the world’s biggest auto market halved from the previous year’s 14 percent.

    “Carmakers have high market expectations. But the reality is: supply exceeds demand,” said Luo Lei, deputy secretary general of the China Automobile Dealers Association (CADA).

    “In the past, dealers were angry, but dared not speak out. But now, they have to shout because the situation is getting so unbearable,” said Luo, whose body this month filed a report with authorities on the practice of transferring stock to dealers.

    The report from China’s biggest dealer body could help change the balance of power at a time when automakers are starting to alter expectations in an economy expanding near its slowest rate in 24 years.

    Japan’s Honda Motor Co. Ltd. and Nissan Motor Co. Ltd. cut their China sales forecasts in December while executives say Toyota Motor Corp. is likely to miss its 2014 goal. Germany’s BMW said it expects profit margins to narrow as the market “normalizes” from the growth spurt of the past few years.

    “Carmakers are making a compromise to dealers” in their worst-ever spat, said Yale Zhang, managing director of consultancy Automotive Foresight.

    “Over the past years, carmakers, especially luxury brands, have been too aggressive in their quest for China market share. Now with the problem fully exposed, I expect to see an obvious slowdown in their pace of expansion in 2015.”

    Honda has been helping dealers “adjust” inventories since the middle of last year, a company spokesman said. Honda’s China sales have fallen every month since July.

    BMW China head Karsten Engel said in an interview in December that the luxury carmaker had “listened” to dealers saying stockpiles were building up, and that it had started “reducing wholesale supplies.”

    The reduction contributed to BMW’s sales growth slowing to 8 percent in the third quarter from over 20 percent in the first half.

    BMW in a statement said it is in continuous dialogue with dealers about all aspects of business development including targets, and that it is in its interest for dealers to be profitable.

    In its report to the government, CADA said automakers have “excessive power” as their targets essentially obligate dealers to buy their cars. That means automakers still earn a profit whereas dealers suffer “rampant losses” because of an inability to sell excess stock to consumers, CADA said.

    In separate reports, CADA said 30 percent of dealers profited in 2014 compared with 70 percent in 2010, and that inventories were equivalent to 1.8 times monthly sales, above the “alert line” of 1.5 times. A stockpile of 0.8 times to 1.2 times is generally considered healthy, industry analysts say.

    (SD-Agencies)