Profitable mantainance business keeps BMW alive in China

Since the beginning of the year, Chinese motor market situation has continues to deteriorate. Besides slower sales growth rate, the escalating price reduction war has further devoured the profit of automakers and distributors. Many distributors have shut down business out of capital chain rapture or huge deficit.

In order to save distributors from bankruptcy, luxury vehicle manufactures like BMW, Audi, Mercedes have offered dealers a large sum of subsidy. This put luxury vehicle distributors into public focus.

The profits in selling new vehicles is so less that it can be almost neglected in revenue, a BMW distributor stated. But while other dealers suffer deficit, it never happens to BMW distributors that they lose money in selling new cars. Their profits surely have slumped compared with that of years ago, but none has suffered deficit.

The secret is that repairs and maintenance income has increased 65% compared with the same period of last year. The financial permeability also climbed 45% on a year-on-year basis. Additionally, displacement ratio of second-hand car also surged to 42%, expected to reaching 45% by year end.

The trend has taken on that whole vehicle sales entering meager profit era. The real profit opportunities have increasingly shifted to auto derivatives business and motor aftermarket.

BMW has made great adjustment on business policies for dealers, alleviating to a large extent fund pressure on distributors. Passenger vehicle market in the first seven months dropped 26% from a year earlier while that luxury auto market in Beijing has increased by 9.6% in the first half on a year-on-year basis.