Bayerische Motoren Werke AG share price down, agrees to pay $820 million to its distributors in China

The China Automobile Dealers Association announced that Bayerische Motoren Werke AG agreed to pay 5.1 billion yuan ($820 million) to its distributors located in China. The payment will be used to cover their losses after the retailers stopped making orders for cars from the manufacturer.

According to the statement of Deputy Secretary General of China Automobile Dealers Association – Song Tao, the subsidies are expected to be paid by the end of February.

As the Association revealed, the dealers of BMW had initially asked for more than 6 billion yuan in rebates. Nevertheless, they are the biggest ones made by an auto manufacturer to its distributors in China. Mr. Song explained that the negotiations are still continuing over BMWs 2015 sales target, which was described by dealers as too high, considering the countrys slowing economic growth.

Mr. Song, who represents the dealers of both BMW and Mercedes at the China Automobile Dealers Association, said in a statement: “Some of BMW’s dealers suffered big losses last year. It’s a common situation in the premium car market. It’s happening not just to one or two premium manufacturers, but to all of them.”

The arguments between the company and its dealers come as a reflection of the increasing tension in the industry. Although sparks between the two parties are considered normal at the beginning of every year, they are believed to be more serious now as Chinas economy suffers decelerating growth.

In addition, the talks related to financial support are part of the Chinese auto retailers broad push to become more independent from manufacturers as the latter currently determine the number and type of cars that are being sold by their distributors.

One of the analysts, who work at CSC International Holdings Ltd – Han Weiqi commented for Bloomberg: “This is an unusual move by automaker to give funding of such big scale. But in the long term, a smooth relationship with dealers is in carmaker’s best interests and they have to meet dealers half way.”

Bayerische Motoren Werke AG lost 1.41% to trade at €86.77 per share at 9:54 GMT in Frankfurt, marking a one-year change of +3.32%. The company is valued at €56.61 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 13.62% increase from the previous close of €88.01.