Audi, SAIC sales talks on hold

Car­maker de­lays new net­work, but pro­duc­tion plan­ning con­tin­ues

China Daily (Hong Kong) - - MOTORING - By LI FUSHENG li­fusheng@chi­nadaily.com.cn

Ger­man pre­mium au­tomaker Audi AG has de­cided to tem­po­rar­ily sus­pend its talks with SAIC Mo­tor Corp over sell­ing its cars be­cause of protests from its ex­ist­ing deal­ers. But an­a­lysts say there is no chance that such op­po­si­tion would stop the two car­mak­ers’ co­op­er­a­tion.

Audi’s com­pro­mise came af­ter a lengthy, quar­rel­some meet­ing in Bei­jing in­volv­ing the heads of Audi China, the Audi sales unit at FAW-Volkswagen Au­to­mo­bile Co, nine rep­re­sen­ta­tives of the more than 400 deal­ers and of­fi­cials from the deal­ers as­so­ci­a­tion on Nov 30.

The meet­ing took place one day be­fore the dead­line the deal­ers had set, the date by which they would stop tak­ing Audi stock if they could not have a “clear and sat­is­fac­tory an­swer” from the au­tomaker about how to pro­tect their in­ter­ests. This fol­lows the break­down of a pre­vi­ous round of talks nine days ear­lier.

Deal­ers be­lieve the car­maker’s in­ten­tion to set up an­other sales net­work would in­crease com­pe­ti­tion and make their life harder, claim­ing some of them are al­ready bur­dened with high in­ven­to­ries and other fi­nan­cial prob­lems.

A con­fi­den­tial doc­u­ment signed by Audi China head Joachim Wedler, which is one re­sult of the Nov 30 talks, said it “agrees to tem­po­rar­ily stop the ne­go­ti­a­tion with SAIC re­gard­ing a dealer net­work and sales chan­nels” un­til the com­pany’s cur­rent deal­ers see sta­ble prof­itabil­ity.

The doc­u­ment, the au­then­tic­ity of which was con­firmed by a source close to Audi, said rep­re­sen­ta­tives from Audi deal­ers and FAW Group Corp will be in­vited to join the talks be­tween Audi and SAIC when they are re­sumed be­fore March.

It also shows that FAW-Volkswagen’s Audi sales unit will “en­sure com­pet­i­tive­ness and prof­itabil­ity for to­day and the future” for the cur­rent deal­er­ship net­work, and that it will im­prove its “re­gional man­age­ment of the sales net­work”.

The sales unit could not be reached for com­ment re­gard­ing the next steps, in­clud­ing whether there will be com­pen­sa­tion for deal­ers who claimed the au­tomaker has set un­re­al­is­tic sales tar­gets and mis­led them into build­ing more out­lets.

There are al­ready 449 deal­er­ships in the coun­try and dozens un­der con­struc­tion.

Chi­nese me­dia re­por ts say the amount of com­pen­sa­tion, if there is any, could be as much as 20 bil­lion yuan ($2.9 bil­lion).

How­ever, Audi China spokesper­son Martin Kuehl said the sales net­work “as a whole” is prof­itable.

De­spite the com­pro­mise be­tween Audi and its deal­ers, Chen Hong, chair­man of SAIC Mo­tor, told share­hold­ers on Dec 1 that “it is no big deal, and there will be lit­tle change to SAIC-Audi co­op­er­a­tion”.

The first Audi model to be pro­duced at SAIC Volkswagen is sched­uled to be show­cased at the Auto Shang­hai 2017 show in April.

Audi China con­firmed to China Daily that it would sus­pend its talks on the dis­tri­bu­tion net­work but the talks on pro­duc­tion will not be interrupted.

An­a­lysts do not think the deal­ers could, or have the in­ten­tion to, stop the Audi-SAIC co­op­er­a­tion, ei­ther.

Xiao Zhengsan, sec­re­tary-gen­eral of the China Au­to­mo­bile Deal­ers As­so­ci­a­tion, said: “These deal­ers are not against a new joint ven­ture. They are fight­ing to pro­tect their in­ter­ests.”

He said Audi deal­ers have been ex­pe­ri­enc­ing hard times over the past two years and build­ing a new sales com­pany will make their po­si­tion even harder.

“That is why they are wor­ried. And they feel they want to be in­formed if Audi has any new co­op­er­a­tion,” ex­plained Xiao.

SAIC Mo­tor said in a state­ment on Nov 14 that it had signed a memo of un­der­stand­ing with Audi’s par­ent com­pany, Volkswagen AG, three days ear­lier about build­ing and sell­ing Audi mod­els.

An­gry Audi deal­ers said in a pub­lic let­ter that they were un­aware of this un­til they read me­dia re­ports.

Zhang Zhiy­ong, an in­de­pen­dent auto an­a­lyst in Bei­jing, said Audi did noth­ing wrong by ink­ing the deal of pro­duc­ing cars and set­ting up a new sales com­pany.

“It is no prob­lem be­cause it is legal for Audi to do so, and Audi did not prom­ise FAW not to join hands with others,” he said.

He said it de­pends on the au­tomaker to de­cide whether it sets up a com­pletely in­de­pen­dent net­work, uses the cur­rent sales net­work or al­lows cur­rent deal­ers to join the new net­work.

Zhang sug­gests the Ger­man brand gives cur­rent deal­ers pri­or­ity in be­com­ing deal­ers of Audi cars pro­duced at SAIC Volkswagen.

“It would be a win-win for Audi and the deal­ers. Many of them have a deep un­der­stand­ing of the brand, and they can do a bet­ter job than new re­cruits in pro­mot­ing Audi’s de­vel­op­ment in China,” he said.

Zhang said it is hard to say what may hap­pen in the new round of talks on Audi-SAIC co­op­er­a­tion, when they start in the new year.

“But what is cer­tain is that the quar­rel-and-com­pro­mise be­tween Audi and its deal­ers will be re­mem­bered as a land­mark, as re­la­tions be­tween all au­tomak­ers and their deal­ers evolve in China, the world’s largest auto mar­ket,” he said.

When asked if Zhang’s sug­gested out­come is pos­si­ble, Kuehl said he did not want to spec­u­late but “a lot of things are pos­si­ble, and we will make sure that the in­ter­ests of our deal­ers are taken into ac­count.”

Audi has long been the best-sell­ing pre­mium auto brand in China, but it is los­ing mo­men­tum com­pared with its ri­vals.

The pre­mium car­maker sold 487,265 cars in the Chi­nese main­land and Hong Kong in the first 10 months of this year.

De­spite a lion’s share of the mar­ket, it rep­re­sented the low­est growth yearon-year among the three pre­mium car gi­ants, at 5.7 per­cent.

In com­par­i­son, BMW’s sales rose 10.2 per­cent to 423,330 units and MercedesBenz sold 387,015 units, a 29.3 per­cent surge year-on-year.

These deal­ers are not against a new joint ven­ture. They are fight­ing to pro­tect their in­ter­ests.”

Xiao Zhengsan, sec­re­tary-gen­eral of the China Au­to­mo­bile Deal­ers As­so­ci­a­tion

LI FUSHENG / CHINA DAILY

Vis­i­tors pass by FAW-Volkswagen Audi’s booth at the Guangzhou auto show in Novem­ber 2016.

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