BMW share price down, struggles with Chinese dealerships

BMW AG faces difficulties to maintain a healthy relationship with its China dealers as more car distributors threaten to not purchase any new vehicles unless the German auto giant decrease its sales target and offer subsidies.

According to executives at two BMW dealerships, the car sellers will stop taking BMW vehicles starting as early as Thursday if their demands are not met. The dealer operators want BMW to lower its 2015 sales target and pay 5 billion yuan in subsidies.

Dealers have argued in recent weeks than BWMs sales target is too ambitious for China as the country suffers from sluggish economic growth amid anticorruption crackdown on government officials. When these factors are taken into consideration, it becomes challenging for car dealers to stay profitable given BMWs current terms. The car distributors are also asking for larger cash rebates as they are hurt from selling new vehicles.

“BMW cars are competitive in terms of performance and branding. But the company’s management is too aggressive and not reasonable,” said a dealer based in the southeastern province of Fujian, cited by the Wall Street Journal. “If they continue to ask for a double-digit growth rate for 2015, I think many of its dealers will go bankrupt.”

Dealership say that they are yet to agree on 2015 terms, including sales targets and business policies, with the German luxury car maker, despite that 2014 is nearly over. Dealers worry that BMW will “continue to set an unreasonably high sales target” during negotiations, which have not began yet.

The slowing Chinese economy have pressured car sales and thus expanded inventories, including rival dealerships as well. However, the slowdown has weighted on BMWs performance more compared to Volkswagen AGs Audi. BMW has taken a more aggressive approach when competing for more luxury car market share. BMW currently has more than 420 dealerships in China compared to Audis 370, and reported a 17% increase in vehicle sales to 415 209 compared to a 16% rise from Audi during the same period.

BMW gained 0.20% on Monday but lost 1.36% on Tuesday and closed at €89.77 in Frankfurt, marking a one-year increase of 5.34%. The company is valued at €57.74 billion. According to the Financial Times, the 29 analysts offering 12-month price targets for Bayerische Motoren Werke AG have a median target of €100.00, with a high estimate of €120.00 and a low estimate of €70.00. The median estimate represents a 11.40% increase from the last price of €89.77.