Volkswagen Said to Pay $161 Million to China Car Dealers

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FAW-Volkswagen
The FAW-Volkswagen plant in Chengdu in 2014. Photographer: Goh Chai Hin/AFP via Getty Images

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.

“VW has been under particular pressure due to its lack of SUV product at a time when SUVs are growing much faster than the overall market,” said Janet Lewis, an analyst at Macquarie Group Ltd. in Hong Kong. “Funds have been diverted by the stock market, so hopefully consumers have not lost much or panicked over the past few days.”

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.

Sales Decline

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.

Jochem Heizmann, VW’s China chief, said in April that the automaker won’t beat industry sales growth this year because it’s missing out on a surge in demand for budget-priced sport-utility vehicles and minivans. The carmaker has plans to build up capacity in China to 5 million vehicles by 2019 versus 3.5 million in 2014.

“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.”

— With assistance by Tian Ying, and Alexandra Ho

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