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Farewell to the golden years

Author: Wang Yajun

Cover source: The Matrix Revolutions

“Is the car price war going to slow down?”

This is what Lin Zhao (pseudonym), an institutional analyst, sawBMWAfter hearing the news of BBA’s withdrawal from the price war, the thought that came to my mind was, “Top brands like BBA have a demonstration effect.” BBA’s withdrawal from the price war also confused Lei Jun, who wrote on his personal Weibo: “BBA’s price increase, what’s going on?”

A month ago, on July 12, the topic "BMW China will withdraw from the price war" became a hot search on Weibo. BMW China responded that in the second half of the year, BMW will focus on business quality in the domestic market and support dealers to make steady progress.

However, this was generally interpreted by the outside world as BMW's withdrawal from the price war. Since then, topics such as "BBA price increase" and "More people come to see BMW after price increase" have become hot searches.

More than a month before "quit the price war" became a hot search, BMW was also a hot search, and the topic that time was "BMW's drastic price cut."

July weekly sales volume first decreased and then increased

About a week before "BMW withdraws from price war" became a hot topic, Zhang Feng (pseudonym), who has been a BMW dealer for 14 years, learned that BMW notified its dealers that it would cut its annual wholesale sales target by 15%.

"The last time we notified the reduction in tasks was in June, which was also a 15% reduction."

With nearly 30% fewer tasks, dealers have enough room to adjust car prices and preferential policies. Soon, "BMW price increase" became a hot topic.

A salesperson at a BMW 4S store told Snow Leopard Finance that the model with the highest price increase in his store is the X7, with an increase of 60,000 yuan; the increase for conventional models such as the X3 and i3 is around 40,000 yuan.

Dai Hexuan, CEO of BMW Brilliance, said: "Prices are determined by dealers as independent business entities. BMW will maintain intensive discussions with upstream and downstream partners to see how a sustainable business model should be conducted to ensure that all partners can make enough money to survive into the future."

Faced with BMW's price cuts,BenzandAudiHow did the dealers react?

According to calculations by CMB International, the discounts of BMW Brilliance in July narrowed by 0.9 percentage points month-on-month to about 27%, the first month-on-month decline since February this year; but the discounts of Beijing Benz in July widened by about 0.3 percentage points month-on-month to about 23%, reaching a new historical high again.

"It looks like Mercedes-Benz is not following BMW's lead in exiting the price war," the report said.

Several Audi 4S store staff told Snow Leopard Finance that the prices of the models in the stores have not increased yet.Audi Q3The current discount is a little bigger than at the end of June.”

In July, BMW's sales increased every week, while Mercedes-Benz and Audi surpassed BMW in the third and fourth weeks respectively.

Lin Wei (pseudonym), sales director of a car company, believes that BMW's weekly sales growth in July came from the sales-forcing effect brought about by price increases.

In addition, some of the orders lost by BMW due to price increases went to Mercedes-Benz and Audi, pushing up the latter two's weekly sales. "Lowering prices early will bring more benefits than lowering them later, and raising prices first will cost more than following the trend."

The small wind of BBA's withdrawal from the price war has not yet set off a demonstration effect in the industry.

A research report from CMB International shows that in July, the average terminal discount in the automobile industry expanded by 0.7 percentage points from the previous month, and the discount expanded faster than in June.

The report analysis believes that although some German brands claim that they will withdraw from the price war in the second half of the year, Chinese independent brands that value market share more, especially new energy brands, still have the motivation to increase terminal discounts. "The deepening of competition may make the efforts of foreign brands to recover discounts ineffective."

Farewell to the golden years

In Zhang Feng’s eyes, the period before 2022 will be the golden age for BBA dealers, “We will make a lot of money at that time.”

From 2016 to 2021, BBA's combined market share in the domestic automobile market above RMB 300,000 has been above 50%. BBA's dominant position in the high-end market has also brought huge profits to dealers.

In 2021, Zhongsheng Holdings, the second largest dealer of Mercedes-Benz, achieved a net profit of 8.329 billion yuan, a year-on-year increase of 50.35%, higher thanGAC、Great WallandBYDIn that year, the group's market share of the domestic Mercedes-Benz brand was about 18%.

At that time, if you wanted to become a BBA dealer, you needed both soft and hard strengths.

Hard power is capital. The high unit price of BBA determines that the dealers' purchase costs are high, which requires investors to have strong enough capital strength.

Soft power is channels and connections.

Lin Wei told Snow Leopard Finance that the demand for high-end models such as BBA comes not only from C-end consumers, but also from large B-end customers. "Bosses with channels can easily deal with these large customers, so manufacturers like to choose bosses with wider social circles."

"More than a decade ago, dealers had to choose one among BBA. If they sold Mercedes-Benz, they couldn't sell BMW. Now all this is relaxed," Zhang Feng told Snow Leopard Finance.

In his career, 2021 was the "most comfortable time" because the chip shortage at the time affected the supply and demand relationship. According to statistics from Sang Zhiwei, a member of the Expert Committee of the China Automobile Dealers Association, the average transaction prices of Mercedes-Benz, BMW, and Audi were 464,000, 461,000, and 337,000 yuan, respectively.

However, after entering 2022, the average transaction price of BBA has fallen year after year. In April this year, the average transaction price of Mercedes-Benz and Audi fell by 30,000 yuan and 36,000 yuan respectively compared with 2021, and BMW fell by 110,000 yuan.

The price drop also affected dealers' profits. In 2022, the net profits of Zhongsheng Holdings, Meidong Auto and Yongda Auto all fell by more than 19% year-on-year, while Guanghui Baoxin and Harmony Auto turned from profit to loss.

The strongest impact Zhang Feng felt came from domestic brands. According to statistics from Soochow Securities, domestic brands have continued to increase their market share in the market above 300,000 yuan since 2021, thanks to their advantages in intelligence and electrification. In 2023, domestic brands will account for 27% of the luxury car market, while BBA's market share will drop to 45%.

Image source: Soochow Securities

At the same time, the emergence of the direct sales model has also brought shocks to dealers.

November 2013,TeslaThe first direct-sale store was opened in Beijing Fangcaodi Shopping Center, and it was the first to promote direct sales. Since then, new car manufacturers such as Wei, Xiaoli and Li Auto have followed Tesla's example and embarked on the road of direct sales.

Lin Zhao told Snow Leopard Finance that compared with the dealer model, the direct sales model has more transparent prices and better user experience. Automakers can also directly collect user data and adjust their business operations based on this. "The data from direct stores is definitely more accurate than the data that has been passed through dealers."

Defending the battleground

In the era of fuel vehicles, BBA has its own unique aura. With its excellent comfort and handling, "riding in a Mercedes-Benz and driving a BMW" has become a popular trend for a while, while Audi has the reputation of "lighting factory" and the aura of "official car".

Today, BBA’s brand halo has not completely faded.

According to the "China Automobile Resale Value Research Report in June 2024" released by the China Automobile Dealers Association, BBA ranked in the top five of the luxury brand resale value list.

Leveraging BBA to build their own luxury brand image and promote sales performance is still an unspoken marketing strategy for many car companies.

Richard Yu recently said,BAICCreated in collaboration with HuaweiEnjoy S9, positioning benchmarkingMercedes-Benz S-Class、BMW 7 Series750Li andAudi A8L。NIOCEO Li Bin has repeatedly emphasized on different occasions that "NIO is targeting the market of BBA" and "our competitors are BBA." Li Xiang said in June last year that with the delivery of pure electric models and other new extended-range models, he is confident that the total sales volume will exceed BBA in 2024.

The challenges are indeed intensifying. In the first half of 2024, the sales of BMW, Mercedes-Benz and Audi in the Chinese market fell by 4.2%, 6.5% and 1.9% year-on-year respectively.

Luxury cars are a battleground for emerging high-end brands and traditional high-end brands.

According to the analysis of Yiche Research Institute's "Volkswagen Car Market Insight Report", 2024-2026 is theAITO Questions, Ideal, Tengshi,Zeekr、tank、LantuIt is a critical period for emerging high-end brands such as Alibaba and Alibaba to gain a foothold and make efforts. It is also a critical period for traditional high-end brands such as BBA to stabilize their sales in China, avoid the collapse of the price system and reshape their brand value.

Lin Zhao’s focus on BBA’s future observations will be the competitiveness of its new energy vehicle models, “which is the key to whether BBA can return to its peak in China.”

BMW's "new generation" new energy vehicles will be officially put into production in the second half of 2025 and produced in China in 2026. Mercedes-Benz plans to achieve 50% of its sales from new energy vehicles (including hybrid vehicles) in 2030, while Audi said it will launch the "last batch of fuel vehicles" in 2026.

Regarding the industry's view that fuel vehicles are compared to Nokia and smart cars are compared to Apple, Lin Chao believes that the replacement cycle of cars is longer than that of consumer electronics, and disruptive changes such as smartphones replacing traditional phones are difficult to reproduce quickly in the automotive industry.

Lin Zhao predicted that even if new energy vehicle models fail to make a breakthrough in the country, BBA will still occupy an important position in the domestic luxury brand market.

"After all, BBA is a car company that survived two world wars."