China Auto Dealers Group Pushes to End Unilateral Targets

China’s auto dealers are proposing that the government prohibit automakers from dictating the number of cars they sell and extend the duration of distribution contracts to stem losses in the industry.

The recommendations were made by the China Auto Dealers Chamber of Commerce in response to a request for feedback from the Commerce Ministry, which is reviewing industry rules that were first implemented in 2005. Two calls to the ministry’s press office weren’t answered, while the dealer group didn’t immediately return a call seeking comment.

“The existing rules are no longer suitable for today’s conditions, given the shift from a market where demand outstripped supply to one where there’s insufficient demand and an excess of capacity,” the group said in its submission to the ministry, a copy of which was obtained by Bloomberg News. “Weakening the manufacturers’ absolute hold over dealerships will restore balance and promote the healthy development of the industry.”

While China’s vehicle sales continue to expand and are forecast to exceed 23 million units this year, competition for customers has intensified as automakers announce ambitious expansion plans and more brands enter the world’s largest vehicle market. Unsold stock on dealer lots rose to the highest level last month since August 2013, according to data from the China Automobile Dealers Association.

Dealers are cutting prices to reach targets set by automakers to qualify for year-end bonuses that account for more than half of their annual profits from selling cars, the chamber said this month.

Among the chamber’s recommendations to the ministry, manufacturers should bear the cost of recalls if they are at fault and compensate dealers if they withdraw distribution rights in the absence of a contractual breach. Distribution contracts should be automatically renewed for five years after the initial period to allow for better business planning, it said.

— With assistance by Alexandra Ho, and Tian Ying

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