BMW Korea’s operating profit has increased, but it has not paid any dividends to its headquarters. On the other hand, Mercedes-Benz Korea (MBK) has paid its headquarters excessive dividends increased to 66 percent of its net profit, but it has turned a blind eye to social contributions.

There has been growing controversy since the two leading imported car brands in Korea, MBK and BMW Korea, have adopted opposite approaches.

BMW Korea’s operating profit increased by 300% last year. Nevertheless, BMW Korea didn’t pay any dividends to its headquarters for reinvestment in Korea such as after-sales service network expansion and expenditure on social contributions. In contrast, even though MBK’s operating profit decreased by 9%, it paid significantly increased dividends to its headquarters. However, it was found that MBK rarely made a reinvestment in Korea and an investment for social contributions. Therefore, MBK has recently come under fire.

As a result, Mercedes-Benz Korea (MBK) is in danger of being considered as a ‘bad company’. This is because it is stingy with social contribution and reinvestment despite a rapid growth and a sharp increase in sales in the Korean market. Some are giving harsh criticism by saying "Do not buy a Mercedes Benz car."

The Golden days of Mercedes-Benz Korea, ‘No. 1 imported car’

According to the industry sources on the 15th of this month, Mercedes-Benz Korea (MBK) has recently excelled in imported car market. MBK’s annual sales in 2015 were identified as 3.1415 trillion won. MBK is the first imported car company which has exceeded 3 trillion won in sales, up 42.5 percent from the previous year's 2.2045 trillion won. That is, MBK’s sales increased substantially.

In 2015, MBK sold a total of 46,994 cars in the Korean market, up 33.5 percent from the previous year’s 35,213 cars. MBK became ‘No. 1 imported car brand’ in 2016. MBK‘s cumulative sales volume from January to March in 2016 was confirmed as 13,248 units, up 19.8 percent from the previous year. MBK dominated the import car market with a 23.66% market share.

In particular, MBK has sold a number of high-priced cars in the Korean market. MBK‘s E-Class model was put in the list of 2015 best-selling imported cars. The E-Class model was priced around 60 to 95 million won.

MBK‘s S-class model were priced more than 100 million each. 10,180 units were sold during the same period. The S-class model was a ‘sensation’ beyond the market predictions. The S-class model was sold five times as many as the competing models, BMW 7 Series (1,830 units).The sales volume of the full-size Hyundai Equus sedan was 5,158 in 2015 (excluding EQ900), and the sales volume of the full-size Kia K9 sedan was 4,294.

That is, "high-priced cars" were sold "a lot". In 2015, BMW Korea’s actual sales (2.8757 trillion won) were less than Mercedes-Benz Korea (MBK) although BMW Korea’s sales volume (47,877) was more than MBK.

Audi Volkswagen Korea’s sales volume was 58,366 units and its sales were estimated at 2.8185 trillion won in the same period. That is, MBK were substantial.

Compared with Korean car makers, the feature is more clearly evident. GM Korea, Ssangyong Motor and Renault Samsung Motors posted higher sales in the Korean market except Hyundai Motor and Kia. Their sales volumes were 158,404, 99,664 and 80,017 respectively. Their sales were estimated at 2.5501 trillion won, 2.5005 trillion won and 2.1488 trillion won respectively. They sold about two or three times as many cars as other brands, but their sales were less than other brands.

How should we view Mercedes-Benz Korea’s success?

Mercedes-Benz Korea (MBK)’s selling a lot of cars and earning a lot of money, doesn’t make its problems go away. The emphasis is very much on the extent of MBK’s reinvestment in the Korean market.

The companies selling imported cars have been faced by the followings issues over the past few years: sales and service network shortages, poor infrastructure and substandard services.

It is not easy to solve the problem in the early stage of market entry actually. If sales are not big enough, it is impossible to set up a big after-sales service network. When the sales increase, it is desirable that the sales and after-sales service network jointly form a virtuous cycle sales. Social contributions in accordance with the 'corporate social responsibility' cannot be ignored.

MBK’s social contributions are analyzed to be ‘below expectations’. Consumer complaints are often caused by the lack of service network. As of April in 2016, MBK operates 38 exhibition centers and of 40 after-sales service centers. Ssangyong Motor’s exhibition centers were as many as 286 in the same month.

Mercedes-Benz Korea (MBK) is facing mounting criticism because it has held a "dividend party' in this situation. MBK’s sales significantly increased last year but its operating profit rather decreased. MBK’s operating profit in 2015 was estimated at 111.1 billion won, down 9 percent from the previous year. It can be said that this is affected by an increase in its car unit price.

Nevertheless, MBK significantly increased dividends sent to its shareholders in Germany.

MBK had maintained its abnormal dividend payout ratio at as high as 50% before. In 2015, it increased the ratio to 66% so that 58.5 billion won was appropriated for dividend payout. This is why critics say MBK siphoned off earnings from Korea to its headquarters in Germany to enjoy the dividend party.

Audi Volkswagen Korea has also been criticized for the same reason. It showed its dividend payout ratio at as high as 50% in 2015. It also paid about 16 billion won to its headquarters in Germany. Porsche Korea also decided to pay all of its net profit (6 billion won) in dividends. It showed its abnormal dividend payout ratio at as high as 100%.

It goes without saying that it is hard to expect their reinvestment in the Korean market and to carry out their corporate social responsibility. Dimitris Psillakis, the CEO of Mercedes-Benz Korea (MBK) promised to "strengthen MBK’s social contribution activities" at a press conference in January, 2016. Britta Seeger, the former CEO of MBK, had also promised to invest heavily in social contributions. However, critics said that her promises ended in an empty talk. It was known that MBK donated about 2 billion won in 2015. MBK hasn’t provided any specific blueprint for reinvestment yet.

While Mercedes-Benz Korea (MBK) is in a danger of being considered as a "bad company", the management policy of Hyo-Joon Kim, the CEO of BMW Korea, has come into the spotlight newly. BMW Korea posted 235.2 billion won in sales in 2015. The figure indicates a 300% year-on-year increase. Nevertheless, BMW Korea didn’t pay any dividends to its headquarters.

BMW Korea has rather reinvested in the Korean market actively. A notable example is the 'BMW Driving Center’ is built in Yeongjongdo in 2014. BMW Korea donated 1 billion won to help the victims of the deadly sinking of the Sewol ferry. As for donations, BMW Korea spent around 4 billion won in 2015. Recently, BMW Korea announced that it plans to invest 130 billion won in a large scale of regional distribution center (RDC) in Korea by 2017. That is, of course, BMW Korea has created various new jobs through its investment in Korea. An industry official said that “Many consumers are still experiencing considerable inconvenience due to the lack of after-sales service networks. This is a common problem that must be solved by BMW Korea along with all other imported car brands throughout the industry.” He/she also said, "In contrast, Mercedes-Benz Korea (MBK), Korea's No. 1 imported car brand, paid all its dividends to its German headquarters to hold a party there in the same situation. From a common-sense point of view, that is incomprehensible.” He/she pointed out that “It is necessary to adopt management policies like BMW Korea to capture a major portion of the Korean market from a mid-term/long-term perspective".