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Text | Zhao Cheng

Editor | Wang Jingyi

The price war is just like the recent high temperatures in Beijing, making people anxious but helpless.

Recently, at a company located in Beijing Economic and Technological Development Zone,Guangqi HondaInside the 4S store, a salesperson was standing at the door fanning himself. When he saw a customer coming into the store, he did not take the initiative to greet him, but continued to wave the fan in his hand to cool down the customer.

When we asked the salesperson, we learned that the current models on sale in the store have a large discount, with the new generationAccordFor example, the starting suggested retail price of a new car is 179,800 yuan. If you pay in full, you can get a discount of 40,000 yuan. If you pay in installments, you can get a discount of 70,000 yuan. The interest rate is 10 percentage points, and you are allowed to pay off the entire loan after one year.

"This car is the one that causes us the most losses. We lose nearly 15,000 yuan for each car sold. The manufacturer only gives us a discount of 35,000 yuan. As for how much more discount we can get on this basis, it is up to the dealer's own policy. However, the manufacturer basically does not evaluate our sales volume, so we will sell as many cars as we can." At the same time, the salesperson also said that the manufacturer's pricing plan is formulated on a monthly basis, and there is a high probability that the terminal price will be adjusted back in August.

As for the high temperature in the store, the salesperson joked that the air conditioner might have been deliberately broken in order to save costs.

Compared with the "easy and carefree" dealership of GAC Honda, a nearbya ToyotaDealers, however, appear to be more optimistic.

“CorollaThis is the most popular model in our store, but we have to lose 10,000 yuan for each car we sell.GreviaSuch MPVs are profitable. Take the four-wheel drive version as an example. Its market guide price is 369,800 yuan, and the maximum discount is 70,000 yuan. Because the manufacturer gives a relatively high rebate, even if the discount is 80,000 yuan, we will still make money. "At the same time, the salesperson said that with the new generationPradoArriving in stores in August, this model is expected to become the next "volume and profit" model. "The unit price is relatively high, so the manufacturer gives us dealers a higher rebate, and our store has already received deposits from dozens of users."

As for the price war, the salesperson believes that it will continue.BYDThe sales of electric vehicles led by FAW Toyota are huge, and they are always dropping in price, which will quickly encroach on the market share of fuel vehicles. In addition, Beijing has recently added 20,000 new energy vehicle quotas, so for brands like FAW Toyota that mainly sell fuel vehicles, they can only fight the price war to the end. "

In fact, this view is highly consistent with the attitude of FAW Toyota executives.

Dong Xiuhui, Party Secretary and General Manager of FAW Toyota Motor Sales Co., Ltd., recently publicly stated that the current basic direction of FAW Toyota is to maintain scale and then maintain stable profits of dealerships. These are two prerequisites.

"I think the price war will continue in the second half of the year, but the intensity may decline because many companies can no longer afford to fight. We certainly don't want to engage in a price war, but we hope to have a certain degree of competitiveness in the market."

01 We can no longer afford to lose money. It’s time to stop the price war

ContinueBMWAfter firing the first shot in the "anti-price war", many joint venture automakers followed suit.Benz、AudiFirst-tier luxury brands including have ended their strategy of “cutting prices to maintain market share”. In addition, Volkswagen, Toyota, Honda,VolvoMany brands have decided to adjust their terminal policies from July, reduce terminal discounts, or no longer reduce prices further.

"In our store, only the RS model (performance model) is not sold at a loss, and other models are basically sold at a loss. The A6L has been adjusted back to 20,000 yuan, and the Q5L has been adjusted back to more than 10,000 yuan." A salesperson at a FAW Audi 4S store in Beijing said: "Compared with the end of last year, the current terminal price is still quite discounted, and is about 40,000 yuan higher on average. Now the store's price basically changes every two days, and it is likely to be adjusted back to the level at the end of last year."

Coincidentally, a salesperson at a BMW 4S store in Beijing also told us that terminal prices will fall back to the level at the end of last year.

"At present, the prices of the models sold in the store have generally dropped by about 10,000 yuan, and will continue to do so in the future, and will eventually be the same as at the end of last year." Talking about BMW's early withdrawal from the price war, the salesperson said that the biggest change he felt was that department leaders no longer sweared during meetings.

"The manufacturer reduced the sales task for our dealers by 30%, so we were able to achieve the sales target easily. Our store gets cars from the manufacturer at a 10% discount. Before that, the manufacturer did not have much intervention in the terminal price system for dealers. After the price war started, consumers became more cautious, which did not effectively drive sales. Now that the price war has stopped, although the flow of people is less than before, the sales volume is not much different."

BMW's decision to be the first to withdraw from the price war and adjust the prices of its products will inevitably cause it to lose some market share. Some clues of this can be found in Mercedes-Benz 4S stores.

"It's noon now and many people have gone to eat. If you come to the store in the morning or afternoon, our sales are basically not enough. Compared with before, the flow of people in the past few days is indeed a bit abnormal. We understand that many customers come to our Mercedes-Benz store after seeing the BMW." said a salesperson at a Mercedes-Benz 4S store in Beijing.

However, the traffic has not yet been fully converted into sales. "BMW has just announced its withdrawal from the price war, and many customers come to our store to compare prices. We are also adjusting prices. The conversion will be more obvious in late August." The above salesperson said that they really can't afford to lose money. If the price war continues, dealers will have to withdraw from the network on a large scale.

02 Trading price for volume has little effect

The latest "2024 China Auto Dealer Development Report" released by the China Automobile Dealers Association shows that under the impact of price wars, the increase in sales of the top 100 dealers has not brought about an expansion in revenue scale. The overall revenue in 2023 is 1931.7 billion yuan, which is basically the same as in 2022. In terms of profitability, the gross profit of new and used cars has declined to varying degrees.

In other words, a slight increase in revenue and a sharp drop in profits have become a common situation faced by major automobile dealers.

A second-tier luxury brand dealer also confirmed this situation.XT6Discount of 150,000 yuan,XT5The discount is 145,000 yuan. When this batch of cars is sold out, the price of the next batch of cars will be slightly adjusted, but it should not exceed 5,000 yuan. "Many brands quit the price war because sales did not increase significantly, but our store's price reduction measures and effects are quite obvious. As long as the price can be discounted to a certain extent, sales are still good. Our store is relatively small, and we can still sell more than 30 cars a month on average."

However, according to third-party data, Cadillac's cumulative sales in the first half of this year were 43,804 vehicles, a year-on-year decline of 73.2%;CT5As the sales leaders in the sedan and SUV fields, the two models of XT5 had cumulative sales of 28,559 and 5,844 units respectively from January to June, down 24.4% and 13.5% year-on-year respectively.

Cadillac is not the only one that has achieved little success in exchanging price for volume. In the first half of the year, BMW delivered a total of 1.0965 million vehicles worldwide, a year-on-year increase of 2.3%. However, in the Chinese market, sales in the first half of the year fell 4.2% year-on-year to 375,900 vehicles; Audi's cumulative sales in China in the first half of the year were 292,000 vehicles, showing a year-on-year decline.

While sales were hampered, corporate profits were also hurt. In the first quarter of this year, BMW Group's net profit was 2.951 billion euros, down 19.4% year-on-year; Mercedes-Benz's net profit in the first quarter was 3.025 billion euros, down 24.6% year-on-year; Audi's pre-tax profit in the first quarter was 981 million euros, down 58.4% year-on-year.

Some car company executives said that the "price war" among car companies allows consumers to buy cheaper cars or buy more high-end brand models with the same budget. However, in order to seize market share, some car companies have slashed prices to the point of not even caring about costs, which not only damages the long-term development of the company, but also affects the healthy development of the entire industry.

The survey of China's auto dealer inventory warning index shows that in June, China's auto dealer inventory warning index was 62.3%, which is above the boom-bust line, and dealer inventory pressure is still high. In terms of brand type, the current market pressure on luxury and imported brands is prominent, with dealer inventory warning index of 66.4%, mainstream joint venture brands at 60.8%, and domestic brands at 61.5%.

At the same time, the GP1 (gross profit margin of the difference between purchase and sales) of luxury brands fell from -22.0% to -24.2%, which, combined with the performance of the inventory coefficient, shows the fierce competition among dealers in the luxury car market. The direct bidding between luxury brands and joint venture brands for mid-to-high-end products, coupled with the impact of high-end new energy products, has further reduced the profitability of the luxury brand market.

In the view of Gao Xiang, President and CEO of BMW Group Greater China and Director of BMW (China) Investment Co., Ltd., the key to success in the highly competitive Chinese market is to stabilize the dealer network and ensure long-term healthy and sustainable development of partners.

"Our goal is to enable dealers to develop healthily and sustainably with a very reasonable sales target and sales rhythm. BMW abides by the relevant provisions of the Anti-Monopoly Law, and the final market terminal selling price is independently determined by dealers. However, from the perspective of dealers, they will have a very clear business consideration and will make judgments based on their actual financial situation, ultimately striking a good balance between sales quality and pricing strategy," said Gao Xiang.

03 The price war has been going on for nearly 10 years

The essence of a price war is a competitive strategy among companies to compete for market share by lowering commodity prices. It usually occurs in industries with saturated markets and severe product homogeneity.

From 2000 to 2010, there was basically no price war, and car companies only carried out normal promotions in September and October, because that period was the golden decade for the popularization of automobiles in China.

As the Chinese automobile market becomes more mature, although joint venture cars still dominated the market from 2010 to 2015, consumers have begun to make more detailed comparisons among products, which has led to further increases in terminal sales prices.

After 2015, the SUV market has risen, and joint venture automakers have been competing in this field. Brands with high premiums have also been selling at a premium, such asLexus NXSeries and RX Series; andGAC Toyota HighlanderBut domestic brands are developing rapidly.Guangzhou AutomobileTrumpchi GS4andGreat WallHaval H6The aggressive emergence of new models has forced joint venture brands to cut prices or even simplify configurations. For example, many joint venture brand SUVs have launched two-wheel drive versions and A-class models to further lower the price threshold of their products.

The Chinese auto market is shifting from an incremental market to a stock market, and the price war among joint venture automakers started nearly 10 years ago. Second-tier luxury joint venture brands sought sales growth through "price wars", which not only led to an overall upward sales increase in the luxury car market that year and reshaped the market segment, but also made the trend of luxury brands becoming more and more popular.

However, the price war got out of hand and not only spread to the entire joint venture market, but also dragged on for longer and longer, causing the brand premium of joint venture automakers to be damaged, new car prices to be inverted, the used car price system to collapse, and sales to be sluggish. There is no winner in this price war, and both automakers and dealers are suffering.

Liu Yingzi, president of the All-China Federation of Industry and Commerce Automobile Dealers Chamber of Commerce, publicly stated that "market competition based on price as the main means is still continuing, and the industry's excessive internal competition is still intensifying. Under the influence of multiple factors such as inverted car prices and declining brand sales, the majority of auto dealers are facing tremendous pressure in business operations, and anxiety continues to spread."

04 It’s not that I can’t afford it, it’s that it’s not worth it

The automotive industry chain includes all links from raw materials to the aftermarket, involving multiple cost factors. If one of the links is broken, it will inevitably bring serious adverse consequences. Therefore, being stuck in a price war is not a long-term solution. The terminal price correction is conducive to the healthy development of the automotive industry and the industrial chain. After all, the competition of automobiles is about comprehensive strength such as technology, service and product quality, rather than simple price factors.

Market share is a pure zero-sum game. Every percentage point increase or decrease means snatching food from the tiger's mouth.

Someone from a joint venture car company said that a price war is like playing cards. Once someone plays the cards, you have no choice but to follow. If you don’t, you will be eliminated.

"Because each company has different sizes and situations, especially joint ventures, many suppliers and core technologies are controlled by foreign parties. They do not want the price war to continue and feel that it is not worth it to further squeeze costs on the supply chain." The above-mentioned company person said.

In fact, compared with the short-term reduction in profits of auto brands, what corporate executives are more reluctant to see is the vicious competition among dealers, the decline in service quality, and the direct negative impact of price cuts and promotions on brand value.

Therefore, channel health is the key to the health of the entire system. Only by reducing the burden on dealers, adjusting their inventory levels to a reasonable range, and ensuring the cash flow of dealerships can we gradually reverse the negative impact of price wars. Then, through a series of internal corporate strategy adjustments, we can ensure the stable operation of the entire system and avoid the occurrence of systemic risks. It is not difficult to understand why joint venture automakers have begun to withdraw from price wars, even at the cost of losing some market share.

In an increasingly competitive auto market, price wars are like drinking poison to quench thirst. The Chinese auto market is in urgent need of healthy marketing model innovation more than ever before.

Shen Jinjun, president of the China Automobile Dealers Association, said that in the long run, through the innovation and support of financial instruments, a sales and service model centered on customer needs will truly activate consumer demand and ultimately promote a win-win situation for users, brands, dealers and the used car market.

Car manufacturing is not a 100-meter race, but a marathon. It is not about taking quick actions, but about accumulation and following the market rules. Only in this way can we move forward step by step and steadily, which is the basic concept of long-termism.