It is the traditional peak season for car dealers to sell car in China in January, when the country is about welcoming the Chinese New Year. Sadly, three authorized dealers from Guiyang, Chongqing and Guangzhou are not enjoying such market opportunity. Instead, they received a termination letter from the Jaguar Land Rover China (JLR China), the OEM and official importer of the premium English brand Jaguar and Land Rover in China Mainland.
Such action from JLR China is causing the investor of the three dealers a total loss of over 150 millions RMB of investment. The market that have been investing and developing for the last 3-4 years, when markets were nearly a blank, will be taken over by the successors newly nominated by JLR China.
Mr. He, General Manager of Guangzhou Lubao (the authorized dealer of JLR in Guangzhou since 2013 and got terminated) said “Recent years in China, new car sales are making us just a very thin margin, and sometime we even loss big money in difficult models, but we expect customers to come back to service their car so we have a shot to earn some back. After three years of hard working with consistent growth in sales volume, I expect we can make a turnaround from 2017. And now they are terminating us, it is impossible for us to accept this. I have already written back and tell them we are not going to accept such termination that raised by JLR China unilaterally.”
“I know the underlying reason is that we were not able to accomplished the sales target set by them in 2016.” Mr. He continues, “JLR China first suspended our financial support in late 2015. This force us to source car from them by hard cash, instead of financial instruments.” “For me, JLR China does not support our business, our group has six JLR authorized dealerships in total, in 2016, we spent 200 millions RMB plus cash to wholesales new cars from JLR China, this has ruined our resource allocation plan in financial aspect and hence all aspects. JLR China said our financial status is not qualified. It is beyond comprehension, our group also operates other premium brands, such as Maserati, BMW, Benz, Cadillac and even Rolls Royce, Bentley. We hold almost 1/4 of market share in Rolls Royce and almost 1/5 in Bentley. They can all using the financial instruments arranged by their OEM, but not in JLR. Why? I cannot comprehend.”
One business insider comments “I cannot imagine which dealer could have a chance to complete the annual sales target under such condition. It seems they were deliberately set to a mission impossible, and got kicked out.” He adds, in general, regardless of brands, dealerships are highly dependent on the financial instruments arranged by the OEM and official importer in order to perform their wholesale obligation.
Unilateral termination from JLR China set its dealer network business partner in distress.
Three termination letters without notice and communication in advance. It makes the bad situation even worse. Mr. He said, unlike previous years, the car business is very difficult now, and Jaguar and Land Rover is not doing particularly well in this big investment, fast changing and over competition game.
Since the partnership, we had invested over 150 millions in total. If we eventually need to shut down, our investor is definitely total loss, plus a bunch of dispute to handle as we will be no longer in a position to keep our employee. We together have almost 200 employees in this three dealerships. Everyone is hurt by JLR China, we feel like hanging in the air, no sense of security at all.”
Busted by discrepancy and skeptical policies
Guangzhou Lubao for instance, from 2013 to 2015, it maintains an average sales volume of over 500 units per year, one of the best seller in the Southern region of China. With suspension of financial instruments, it drops to 124 units in 2016, merely over 20% of its pervious average sales volume.
Providing no support in financial instrument as required, JLR China is still applying their golden rule of “Completion or Termination”. JLR Dealer network in China had a big clash with JLR China in 2015 but finally resuming in business as the investment is so huge and trade-off is simply too high to being not cooperative with.
Heavy sales target with suspension of financial support. The right of authorized dealers is not quite protected by the dealer agreement, under the practice of “Administration of Automobile Brand Sales Implementing Procedures” issued by the Minister of Commerce of the PRC in 2005 allows a superior position of OEM and official importer over its dealer network business partners. Apparently, JLR China is fully utilizing the policies to game out its “not corporative” business partners.
In early January, JLR headquarters in England made their announcement that they will replace their “in charge” of IMSS, the operating agent of sales, marketing and service activities of JLR in China region, effective on 1st February 2017.
Despite the high investment and long return period, there is still a number of investors regard being a part of such global brand is a favorable investment option. In car business in China, authorization process is always full with untold stories. Terminating three dealerships and authorizing to others seems a very skeptical decision in such critical moment.
With Chinese New Year is just around the corner, those three dealers are full of challenges. If the clash cannot be settled by negotiation among both side, dealer side, being terminated unilaterally, may take legal action for declaring their rights. This may make the difficult task even harder for the new boss.
Company Name: XCar
Contact Person: Mr. He