China's Biggest Car Dealer Buys $1.1 Billion Baoxin Auto Stake

  • China Grand Automotive bought 53.6% stake in BMW Distributor
  • Some carmakers have given financial assistance to dealers

China Grand Automotive Services Co., the country’s largest publicly traded car dealership group, paid HK$8.2 billion ($1.1 billion) for 53.6 percent of Baoxin Auto Group Ltd. amid a slowdown in sales that’s spurring consolidation among vehicle retailers in the world’s largest auto market.

China Grand Auto paid HK$5.99 for each share of the distributor of BMW AG vehicles in the country, according to a filing to the Hong Kong stock exchange. That is 44 percent higher than Baoxin Auto’s HK$4.15 closing price on Dec. 4, before trading of the shares was halted Dec. 7. The transaction took place on Dec. 4, according to the disclosure.

The deal will give China Grand Auto access to Baoxin’s network at a time slowing growth in luxury sales is prompting both premium carmakers and distributors to widen their geographic reach and appeal to diverse demographic groups. Gaining scale will also give the dealership group more bargaining power with automakers on everything from financial assistance to sales targets.

China Grand Auto had as many as 454 stores at the end of June, while Baoxin Auto operated 101 outlets. China Grand Auto said 52 of its outlets are “high-end brand stores,” while Baoxin Auto has said it’s the largest dealer of BMW-brand vehicles in China, according to the filings and statements of the respective companies in August.

Automakers have said China’s sales will moderate as the economy is forecast to expand at the slowest pace since 1990. Total vehicle sales, including trucks and buses, may increase 3 percent this year, according to the state-backed China Association of Automobile Manufacturers. That contrasts with the average 36 percent growth in the past decade, according to data compiled by Bloomberg Intelligence.

Starting October China’s government cut the purchase tax for passenger vehicles with engines 1.6 liters or smaller by half through the end of next year. The step was taken after lobbying by the state-backed auto association for stimulus measures to bolster the industry after vehicle sales fell for five straight months amid a stock-market rout in summer. 

Carmakers including Volkswagen AG and BMW have paid out financial assistance to dealers in the past year amid waning demand. Combined profit still plunged by 29 percent at the eight Hong Kong-traded Chinese car retailers during the first six months of the year, according to data compiled by Bloomberg.

BMW earlier this year agreed to give its Chinese dealers 5.1 billion yuan to help them cover their losses, while Toyota Motor Corp. gave 1.2 billion. Volkswagen AG and its unit Audi also agreed to pay out about 2.2 billion yuan to its dealers.

— With assistance by Kongho Chua

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