More than 100 dealers of Dongfeng Yueda Kia Motor form a working group last week to claim 2,000 yuan ($290) for each Kia-branded car sold in 2016. (Photo by Shi Yan/For China Daily)
Working group claims joint venture's policies, prices were misleading, if not illegal
Kia's Chinese dealers joined hands in seeking compensation after suffering losses and overstock, arguing that the automaker's business strategies over the past two years were unfair and unreasonable.
More than 100 dealers of Dongfeng Yueda Kia Motor formed a working group last week to claim 2,000 yuan ($290) for each Kia-branded car sold in 2016 as compensation for overstock caused by the forced buying-in of unpopular models.
"The dealers' losses have totaled 5 billion yuan over the past two years, counting all of the about 500 dealerships' showrooms nationwide," Chen Keyun, head of the working group, told China Daily on Jan 17.
"Dongfeng Yueda Kia wrongfully set unreasonably high wholesale prices, but the customers by no means accept such an unreasonable price."
According to Zeng Zhiling, managing director of LMC Automotive Consulting, Dongfeng Yueda Kia's pricing and positioning strategies are among its major weaknesses.
"Kia-branded cars are priced very similarly to brands from the United States and Europe. The unreasonable prices are not attractive to customers, as the South Korean brand and its products are not strong enough," he said. "Customers seeking value for money have turned to Chinese brands, which have improved greatly in the past several years.
"Kia and its sister brand Hyundai have such similar positions and products that they are now each other's rivals. Kia has not realized synergy with Hyundai, like Buick and Chevrolet did within General Motors. Buick is at a more premium level than Chevy."
Chen said the small dealers witnessed their showroom visits drop all the way, but were not allowed to correct the retail price with a discount. The Sino-South Korean joint venture gave them business policies that forbade discounts below a set amount, or the dealership's authorization would be cancelled.
Zhang Yang, an attorney with Allbright Law Offices, advised that if an agreement sets the retail price's ceiling or floor, both the automaker and the dealers would be suspected of being involved in a monopoly.
He suggested: "If appropriate, the dealers may inform the government pricing watchdog of the carmaker's behaviors. However, both the carmaker and the dealers might be subject to a fine, as they entered into a price-fixing agreement, be it forced or voluntary."
Local Chinese media reported that some dealers did not pin hopes on the automaker any longer and sold the stock cars at discounted prices, lower than the buy-in price. They endured the losses to gain some cash flow to avoid bankruptcy.
"More than 100 dealers have already abandoned ship in the past two years, so the dealership network shrunk to a little more than 500 this year, down from 680 a few years ago. Now, about 130 dealers are on the verge of bankruptcy, including mine," Chen said.
Exaggerated sales
The Dongfeng Yueda Kia dealers working group has now refused to buy any more stock until the carmaker establishes a healthy mechanism for their performance assessment and a more beneficial business policy.
A report by the China Auto Dealers Chamber of Commerce showed Dongfeng Yueda Kia's dealership network will be as large as 500 this year, with each dealer holding a stock of 240 vehicles on average, far beyond the alert level.
"It could take as long as five months to find buyers for our overstock," Chen said.
