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While the "half-price BMW" sale has become a thing of the past, consumers' enthusiasm has not faded.

A week after BMW raised its prices, on July 21, a reporter from 21st Century Business Herald visited the BMW store in Guangzhou's Baiyun District. A salesperson said that his store sold "20 to 30 cars" in the first week after BMW raised its prices. "Compared to the monthly sales of 150 to 160 cars last month, it is a certain decrease, but it is acceptable."

The salesperson revealed that after the "low-price promotion" at the end of June, all the inventory cars of major BMW dealers have been sold out. Combined with BMW's production reduction policy, BMW will continue to adjust prices in the future.

A week ago, due to heavy losses in its stores, BMW clearly withdrew from the price war and began to "reduce quantity to maintain price" since July.

Take the i3 as an example. Its suggested retail price when it was launched was 353,900 yuan. In June, BMW was engaged in a price war, and the i3 was about 190,000 yuan, nearly 50% off the suggested retail price. On July 12, BMW officially announced its withdrawal from the price war. Combined with the preferential financial policies, the current landing price of the i3 35L is around 229,000 yuan, and the price has been raised by 20,000 to 30,000 yuan. The above salesperson said, "In about two months, the i3 will rise to 260,000 yuan." This means that compared with the historical low, the i3 will rise by 70,000 yuan - equivalent to the price of a Volkswagen Polo. Of course, the price increase is the personal behavior of the dealer.

"Currently, the i3 will not arrive in stores until the end of July at the earliest. If you miss it, you may have to wait until September." Sales staff from several BMW stores told reporters.

BMW was the first to press the pause button on the price war, and many brands also joined the "price increase trend", making it as lively as when the price war just started a year and a half ago.

"Audi will also start to adjust prices later, and it is recommended to buy as early as possible." An Audi salesperson told the 21st Century Business Herald reporter. A Guangzhou Mercedes-Benz salesperson said that in early July, the prices of some Mercedes-Benz models were adjusted and have been continuing, but the prices of imported cars are falling.

Afterwards, the price increase trend spread from BBA to foreign brands such as Honda and Volvo, and domestic high-end new forces such as NIO and Li Auto also reduced their discounts.

"The price increase strategy of BBA (Mercedes-Benz, BMW, and Audi) is to move closer to the consumption format of luxury goods." A front-line salesperson who has been engaged in luxury brands for many years told the 21st Century Business Herald reporter.

He believes that the original luxury brand market is getting smaller and smaller, and the current market is already a stock market. "No matter how the price is adjusted, BBA's target group will still buy it."

In the opinion of another dealer executive, BBA's price increase strategy will reduce dealers' pressure in the short term; but in the long run, fundamental changes must be made on the product side to adapt to the market, "if the value of the product is inconsistent with the price for a long time, the price will have to fall in the future."

Image source: IC photo

Saving 632 stores is saving ourselves

The essence of selling cars is to adjust the relationship between supply and demand. The OEMs can either adjust the supply or increase demand in other ways - the best way to increase demand is to reduce prices.

After the "price war" started, BMW, Mercedes-Benz and Audi had a period of time when they refused to lower prices or compromise. They hoped to survive the price war by adjusting supply. In early April last year, BBA announced that they would implement a price-maintaining strategy at the cost of reducing production, with BMW reducing production by 13%.

Perhaps the production cuts were limited, and dealers were unable to digest the wholesale BMWs. In the same month, some BMW dealers offered discounts on car purchases, such as 80,000-90,000 yuan discounts on i3.

Since the second half of last year, the price war has spread from fuel vehicles to new forces, and from low-priced vehicles to luxury cars. On June 12 last year, the starting price of all NIO models dropped by 30,000 yuan. Two months later, the Zeekr 001 officially announced a price reduction of 37,000 yuan. In September, the new M7 was launched at a "low price" with a starting price of 249,800 yuan.

Faced with the price cuts of high-end new forces, BBA also gave up its premium and joined the price war through official price cuts.

In June last year, car companies such as BMW and Audi launched a limited-time price reduction campaign for their new energy vehicle models. Among them, the price reduction of Mercedes-Benz products was between 60,000 and 70,000 yuan; while the price reduction of BMW i3 and iX3 reached 100,000 yuan, with the prices being around 250,000 yuan and 300,000 yuan respectively.

By 2024, the price cuts are still increasing. The i3 has been reduced by another 80,000 yuan, with the lowest price reaching 170,000 yuan, which is almost halved compared to the suggested retail price. The i5 model has also been discounted by 140,000 yuan, and can be driven home for less than 300,000 yuan. The price cuts of BBA are so large that netizens have begun to joke: "If you don't work harder, you can only drive a BBA."

Before the price war, dealers had three sources of profit: first, there was a difference between purchase and sales; second, after achieving sales targets, car manufacturers would give dealers rebates as incentives; and third, dealers relied on after-sales services to make profits.

However, in the face of fierce price wars, dealers sell cars at prices lower than wholesale prices. "BMW generally gives dealers 3%-4% rebates. Even if dealers meet sales targets, the profits from the rebates are far less than the extent of price cuts, and dealers still lose money," said the above dealer.

The “discounted prices” did not boost sales, but instead put dealers in a dilemma.

Meidong is one of the top BMW dealers. According to the financial report, BMW, Porsche and Lexus account for more than 80% of the stores operated by Meidong. In 2023, Meidong's net profit fell by 72% year-on-year, and the gross profit margin of new car sales was -0.6%. Shenhua Holdings is also one of the earliest dealers to cooperate with BMW. In 2023, it lost 199 million yuan.

In 2024, BBA dealers will continue to suffer losses.

"We are losing so much money that we can't even continue. Our store lost more than 6 million yuan last month and more than 10 million yuan in the first half of the year," a BMW salesperson told 21st Century Business Herald.

The price war also distorts salespeople’s actions. “When sales pressure is high, we will simply and crudely negotiate low prices with customers, and save as much as possible on explaining services and product features.”

According to the official website, as of June 15, BMW had 632 stores in China. Under the vicious cycle of losses, dealers could not hold on and eventually withdrew from the network, damaging the brand channel.

BMW is trying to reduce the pressure on dealers by reducing wholesale sales tasks and other measures. According to people familiar with the matter, in June, BMW reduced its annual wholesale sales task by 15% and provided a series of support in used car sales, dealer training and financing.

However, these measures have not improved the situation of dealers, and have caused the sales and profits of BBA to decline. According to official data, in the first half of this year, BMW's sales in the Chinese market fell 4.2% year-on-year to 375,900 vehicles (including the MINI brand); Mercedes-Benz and Audi's sales in China fell 10.1% and 7.4% respectively, and Porsche's sales fell the most, reaching 33%.

BMW's sales and prices fell, and dealers suffered. BBA began to re-examine the price war. They withdrew from the price war and chose to reduce sales to maintain prices.

According to people familiar with the matter, BMW will reduce production of domestically produced pure electric vehicles by 50% in the second half of the year. In terms of specific models, i3 will see the largest reduction in production, up to 60%, i5 and iX1 will see a 40% reduction, and iX3 will see little change in production capacity, mainly for export. Affected by the production cuts, BMW electric models will see an overall price increase of about 15%.

Cutting production is a way to ease pressure on dealers, but they also face more adjustments.

A BMW salesperson also said, "Now the manufacturer has lowered the task. Previously, the boss required each person to sell 12 units, but now only eight units are required. However, this may also mean salary cuts and layoffs."

The truth behind BBA’s price increase: moving closer to the luxury goods industry

"BBA knows that if they continue to push down, they will be dead," the general manager of a new force brand who has been in the industry for 30 years told 21st Century Business Herald.

The price range covered by a brand is limited. Only in the price range where it is good at can it gain both profits and brand. Otherwise, it will suffer "double losses". Tesla has also proved this truth. Tesla's mainstream price range is above 200,000 yuan. As the first car company to set off a price reduction trend, Tesla was the first to increase prices after reducing its price to nearly 200,000 yuan in January last year. It adjusted its price in May last year.

"As a high-end brand, BMW can only have high-end value by going against the trend," said the above person.

After BBA withdrew from the price war, many brands followed suit, from foreign capital to new forces.

NIO will raise prices on July 22, with ET5/5T increasing by 3,000 yuan and ES6/EC6 increasing by 5,000 yuan. Sales staff at NIO stores in Shanghai pointed out that this is actually a decline in discounts. According to media reports, the price of Honda Civic Fuel Edition in Guangdong is more than 10,000 yuan more expensive than in June; in July, the discount for the entire Camry series in Shenzhen 4S stores was reduced to 40,000 yuan. But this cannot be ruled out as a personal behavior of dealers.

BBA has started a wave of price increases, but not everyone is qualified to follow suit.

"BBA's price increase strategy seems to be moving closer to the luxury consumption format," a front-line salesperson who has been engaged in luxury brands for many years told 21st Century Business Herald.

He believes that the original luxury brand market is getting smaller and smaller, and the current market is already a stock market. "No matter how the price is adjusted, BBA's target audience will still buy it, and those who used to tiptoe to buy BBA models may choose other products."

Zhang Xiang, a visiting professor at the Yellow River Institute of Science and Technology, said in an interview with the media that price increases are the privilege of luxury brands such as BBA, and "other brands have the will but not the courage." Because their brands are too substitutable, the final result is that they can't get profits or market share.

Even for BBA, price increases do not mean entering a safe zone. New forces are grabbing BBA's existing market share.

In the past, BBA was not only the pinnacle of German technology, but also a symbol of social status and social attributes. But now, with the massive attack of new car-making forces, the solidified social labels are disintegrating, and product strength has become the key to supporting the brand.

A dealer said, "In terms of product definition, it is not BBA and Porsche that set the rules now, but Huawei, Ideal, and NIO."

Hardware and software related to intelligence have become important factors for users to consider when buying a car. With the support of Huawei's intelligent advanced driving system, the city smart driving and navigation assistance of the M9 can be "driven all over the country". At present, the intelligence of most luxury brands is still in the exploratory stage.

In addition to products, the new forces also hope to surpass BBA by using BBA's experience in making luxury cars.

A leading dealer told 21st Century Business Herald that Huawei has very high requirements for store layout. Stores must provide more than two kinds of tea and more than three kinds of coffee, and the quality of coffee must reach the "level of chain coffee brands" - these were originally the requirements of BBA and Porsche for dealers. Weilai follows BBA in site selection. Li Bin said bluntly in the earnings call in March 2021: "In cities where there are Mercedes-Benz, BMW, and Audi 4S stores, we will build an offline store."

Sales volume is the best proof. In the first half of 2024, both BMW and Mercedes-Benz showed a downward trend in China. But at the same time, independent high-end brands are advancing by leaps and bounds. In the first half of the year, the sales of Wanda soared by 573.80%, and Ideal and Weilai both maintained double-digit year-on-year growth.

Today, BBA has withdrawn from the price war and entered a new battle of "price increase". It is just a new round of value war, which may be more cruel than the price war.