Russian Auto Dealers Clash With Chinese Manufacturers

ST. PETERSBURG – Russian auto dealers have lodged a complaint against the Chinese automakers who have filled the market void created when western manufacturers pulled out of Russia after the onset of the war with Ukraine.

In a letter to the Federal Anti-Monopoly Service, the Russian Auto Dealers Assn. accuse the Chinese OEMs of not helping with technical support and servicing and obliging dealers to buy more cars than the market can absorb. The dealer group also claims compensation for warranty cases is inadequate and, more broadly, that the Chinese automakers feel no obligations to dealers in cases where they withdraw from the market.

These practices have led to serious losses by dealers, the RADA contends.

Igor Chikin, executive director of RADA, said in an interview that automakers’ sales plans may don’t correlate with market demand.  Chinese automakers often forceRussian dealers to buy cars in high volumes, which leads to overstocking and financial hardshipAdditionally, automakers set production plans that dealers find impossible to fulfill, which leads to financial penalties.

“Dealers are concerned about the one-sided nature of dealer agreements, under which dealers are assigned a lot of responsibility and a lot of obligations,” which generally are not applied to Chinese automakers, Chikin says. “We are counting on … interaction with the antimonopoly authority to regulate these legal relations.”

Spokespersons for Chinese automakers were not available for comment. Representatives of the Anti-Monopoly Service have confirmed receipt of the RADA petition, which they say will be considered “in the prescribed manner.”

Early this year, dealers’ warehouses became overstocked due to Chinese automakers’ plans to control 80% of the Russian market in 2024. Many dealers face serious losses after attempting to speed sales to car buyers.

Sergei Klimov, a co-founder of the Dolavto auto dealership, said in an interview with the Russian Kommersant business paper that Chinese car companies also try to force Russian dealers to sell non-core products, such as bicycles.

Representatives of Russian auto dealers say many Chinese automakers prefer to sign sales contracts for no more than one year and do not extend the agreements in most cases. The dealers say they would prefer the U.S. model, where supply contracts are generally indefinite.

Russian dealers say their failure to meet Chinese automakers’ burdensome sales demands can result not only in the cancellation of bonuses but also voiding of the franchise contract. RADA’s Chikin cites an instance in March where automaker Haval refused to fulfill a sales agreement with a dealer in the city of Yoshkar-Ola.

Dealers began voicing complaints about Chinese automakersin the second half of 2022. At that time, most European, Korean and Japanese brands had pulled out of the Russian market, while Chinese OEMs were actively stepping into the breach. Despite the dealers’ complaints they went ahead with selling Chinese products because they had no other options.

Analysts expect that as Chinese companies continue aggressively expanding into the Russian market, distributors will continue to accumulate vehicle stocks. Due to this, sales requirements will remain high, which will continue to strain relations between dealers and distributors.

Russia’s top-selling automaker in 2023 was domestic producer AutoVAZ, maker of Lada automobiles, according to Wards Intelligence. The next three biggest sellers were Chinese: Chery, Great Wall and Zhejiang Geely.