China Needs An Independent Dealership Association

Current Group Represents Government Rather Than Car Dealers' Best Interests

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China became the world's largest automotive market in 2009, yet its dealers still don't have an independent organization that can effectively represent their interests.

With auto sales slowing and many dealerships forced to maintain dangerously high inventories, the need for an independent dealer association has never been so acute.

Though it sounds like China's equivalent of the National Automobile Dealers Association in the United States, the China Automobile Dealers Association is a semigovernmental organization.

The Chinese government is wary of nongovernment organizations. Like many industry associations, CADA was created by the government, not by auto dealers.

Also, unlike dealer associations in other countries, CADA is run by people dispatched by the government. Its chairman and vice chairmen previously served in government ministries.

These people represent government positions, rather than dealers' interests. That explains why the association has remained a loose and inefficient organization since its establishment in 1990. It also has done a lousy job of data collection and did not start releasing dealership inventory figures until last month.

China is still a young market, and its dealerships are mostly small and weak. Sales of the largest dealership group, China Grand Auto, only accounted for 2% of the nation's total auto sales last year. Left on their own, China's dealers cannot protect themselves when their interests are harmed by automakers.

This problem has become especially acute at a time when light-vehicle sales have slowed from a 30% growth rate in 2010 to 7% in the first half of this year. Anxious to prop up sales, many automakers are dumping inventories on their dealers.

As a result, the average dealership in China had a 59-day supply of vehicles at the end of June, way above the 24-to-36 -day range considered normal. Several brands, both global and domestic, have forced their dealers to take more than 100 days' supply. This has exerted huge financial pressure on dealers, forcing an increasing number to close dealerships and bow out of the auto-retailing business.

Individual dealers are not in a position to defy an automaker that is abusing them. But they can if they take a collective approach. To do that , however, they need the backing of a trade body of their own -- not an organization closely affiliated with the government.

Yang Jian is managing editor of Automotive News China.

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