A Deutsch Motors showroom in Suwon, Gyeonggi Province / Courtesy of Deutsch Motors

Han Sung Motor CEO Ulf Ausprung, left, and Deutsch Motors CEO Kwon Hyuk-min

Dealerships affiliated with BMW Korea and Mercedes-Benz Korea incurred substantial losses last year, attributed to what company officials and experts view as excessive promotional campaigns that ultimately impacted earnings.

Data released by the Financial Supervisory Service showed that Han Sung Motor – an authorized dealer for Mercedes-Benz's local subsidiary – suffered an operating loss of 46.8 billion won ($33.78 million) in 2023 from a year earlier. This is a steep fall from 2022 when it reaped an operating profit of 85.5 billion won.

The steep fall in the firm's revenue is attributable to its aggressive promotional activities — triggered by sluggish market sentiment amid unfavorable macroeconomic circumstances, according to dealers and industry officials.

"Dealerships affiliated with imported automakers typically focus on reducing car inventories, particularly when the year-end approaches," a dealer for a foreign automaker said. "They have no choice but to run diverse promotional campaigns by cutting vehicle sales prices to clear inventory amid this economic slump, even at the expense of their revenues."

Deutsch Motors, an official dealership for BMW Korea and Mini, also suffered a similar fate after experiencing a double-digit profit fall during the same period. The company reported an operating profit of 42.7 billion won last year, down 34 percent from the previous year.

Handok Motors, another influential BMW dealership, also faced a steep earnings fall. The company's operating profit almost halved to 28.4 billion won during the same period.

But this was in contrast to the improved profitability of BMW Korea. The local subsidiary of the luxury automaker generated an operating profit of 213.8 billion won last year, up 48 percent from 2022. Sales also jumped to 6.1 trillion won from 5.78 trillion won during the same period.

Mercedes-Benz Korea also saw sales grow from 7.53 trillion won to 7.93 trillion won, even if its operating profit fell slightly to 239.2 billion won from 281.7 billion won.

However, experts pointed out that luxury automakers should take steps to prevent their dealerships from pursuing excessive promotional campaigns, as such actions risk eroding customer trust.

"Under the free market economy, it is tough for overseas automakers to reshape the current sales structure – driven by dealerships' promotions," Kim Pil-soo, a professor of automotive technology at Daelim University College, said.

"But luxury automakers – such as BMW and Mercedes-Benz – should always keep in mind the recent fiasco of Audi Korea which lost customers' trust for its unreliable promotional campaigns. Maintaining brand identity is as important as sales increases for sustainable growth in any market."

An official at an automaker said excessive price competition appears to be inevitable among imported automobile dealers.

"Hyundai Motor and Kia control the sales policy – including the price of each vehicle – at its headquarters, but this is not the case for imported automakers that sign contracts with multiple dealerships," the official said.