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Hyundai Elantra car image source: Visual China

Author | Yue Jiachen

Editor | Wang Weikai

Produced by | Prism·Tencent Xiaoman Studio

The "forcing the palace" dealers exposed the "tip of the iceberg" of Hyundai Motor's cold reception in the domestic market.

Recently, a letter was sent jointly by 9 dealers in Hunan Province.Beijing HyundaiThe letter was circulated on social platforms, stating that many Beijing Hyundai dealers were facing inventory pressure and operational difficulties.

"Due to serious inventory backlogs, operating difficulties and increasing losses, all Beijing Hyundai dealers in Hunan Province unanimously requested to temporarily stop picking up vehicles from Beijing Hyundai from August 8, 2024, and refused to accept its automatically delivered vehicles. At the same time, dealers required Beijing Hyundai to immediately resolve existing inventory problems and honor its previous commitments and incentive policies." The letter reads.

Currently, there are 15 4S stores in Hunan Province, which means that 60% of the dealers in the region have participated in this "forcing the palace" action.

The author of Prism sorted out the dealers published on the official website. As of now, Beijing Hyundai has a total of 547 dealerships nationwide. Five years ago, Beijing Hyundai had 1,018 dealerships. In the past five years, the number of dealerships has decreased by 46%. Taking Beijing as an example, most of the dealerships in the city are more than 10 years old, and there are very few new franchisees.

"There is indeed an inventory backlog, and we are currently communicating with the head office," a distributor in Hunan Province told the Prism author.

70,000 Elantra, backlog of inventory

"I'm done with this, and I won't do this anymore." A staff member at a Beijing Hyundai 4S store in Shijingshan District, Beijing, said impatiently when answering the author's phone call. According to a notice at the door of the 4S store, the store will stop operating from July 31, 2024.

Beijing Hyundai's official website shows that there are currently 12 dealerships in Beijing, of which only 8 are 4S stores that sell vehicles, and only 2 are located within the Fifth Ring Road. In Shanghai, there are only 6 dealerships, of which only 3 are 4S stores that sell vehicles.

The 4S store located on Zhichun Road in Haidian District is one of the oldest stores of Beijing Hyundai. On the afternoon of August 14, the author of "Prism" came to the store. There was no customer in the empty hall. Two salesmen were holding their phones and talking to customers.SonataLive broadcast, there are also few viewers in the live broadcast room.

The store said that some models now have cash subsidies of up to 30,000 yuan, and the elite version of the Elantra is only 80,000 yuan after the discount. Another 4S store of Beijing Hyundai said that if the loan discount is added, the maximum discount can be 40,000 yuan. This means that an Elantra is only sold for 70,000 yuan.

In the live broadcast rooms of many short video platforms, Beijing Hyundai's B-class model Sonata is even priced as low as 119,800 yuan.

Sonata and Elantra were once Hyundai's two earliest and best-selling models in China.

However, large discounts cannot reverse Beijing Hyundai's declining sales.

According to rankings from Autohome and Autohome, Beijing Hyundai's Elantra, which is the sales leader, sold only 4,638 units in July this year, ranking 19th among its models, with cumulative sales of 44,000 units in the past six months. Sonata sold only 937 units in July this year, with cumulative sales of 5,721 units in the past six months.

A Hunan regional dealer who participated in the "joint letter" told the author of "Prism" that as of now, its inventory backlog is at least 60 vehicles, but monthly sales are only more than 10 vehicles.

Data from the China Automobile Dealers Association showed that in July this year, the inventory coefficient of automobile dealers was 1.5%. Beijing Hyundai's inventory coefficient ranked second, reaching 2.45%, far exceeding the average level.

"There are indeed fewer and fewer stores doing pre-sales service nowadays, and many stores only do after-sales maintenance." A staff member at a Beijing Hyundai store in Chaoyang District, Beijing told the author of "Prism".

If the car pick-up task is not completed, the dealer will be deducted

The decline in sales was the direct cause of the dealers' "forced abdication". The monthly sales of the stores conflicted with the company's car delivery task, resulting in an increase in inventory and financial pressure on suppliers. But the deeper reason was the dealers' dissatisfaction with Beijing Hyundai's cooperation model.

A Beijing Hyundai dealer in North China explained to the author that Beijing Hyundai has set a car delivery target of 10 to 20 vehicles per month for dealers, and some first- and second-tier cities have even higher targets. Dealers can only get rewards if they complete the car delivery target.

The author consulted Beijing Hyundai's channel operations department about joining as a potential franchisee. A staff member told the author that the task of picking up cars is generally determined by the level of the city. The task of picking up cars in third-tier cities is generally more than 10 cars. Incentive policies are set based on the completion rate of car pick-up and terminal sales, with a maximum of 3,500 yuan per car.

"For example, if the car pick-up completion rate reaches 100% and the terminal completion rate reaches 100%, the dealer can get incentives of 3,000 yuan or more for each car. If the car pick-up completion rate does not reach 50%, there will even be deductions," explained the above staff member.

Industry insiders said that if the task of delivering cars continues to exceed sales, dealers will be in trouble.

The above staff member told the Prism author that, taking a dealer in a third-tier city in the north as an example, the dealer picked up a total of 110 cars in the first seven months of this year, an average of 15 to 16 cars per month. There are currently 30 cars in stock in the store.

A Hunan regional dealer told the author that his store’s monthly sales volume was only around 10 vehicles, but the vehicle pick-up mission was 15 vehicles.

Stopping car pick-ups, solving existing inventory problems, and honoring incentive policies are the main demands of those dealers who jointly "forced the palace."

Nowadays, there are various cooperation models between dealers and car companies. In some brands, dealers can only serve as sales channels and do not pay car companies for vehicles. After customers place an order at the store, the manufacturer will send the car. However, most car companies adopt a more traditional dealer model and still require dealers to pay car companies in advance to ensure that there are cars available for sale.

Take the aforementioned Hunan dealer who participated in the joint venture as an example. They have 60 cars in stock. If the average price of the car is 80,000 yuan, the dealer faces a capital backlog of about 5 million yuan. In order to quickly realize the capital recovery, the dealer has to choose to sell cars through promotion.

The above-mentioned staff member of Beijing Hyundai's channel operation department said that Beijing Hyundai is planning to revise the new store car pick-up subsidy policy.

Currently, Beijing Hyundai is working hard to expand new dealerships to make up for the decline in market share after the withdrawal of old stores. For newly opened stores, Beijing Hyundai will provide a three-year car delivery subsidy of 2% per car. However, if the number of cars delivered is small, it may not get the full subsidy.

Annual sales fell by 70%, and many factories were sold

The joint letter from dealers has once again attracted market attention to Beijing Hyundai. In the past eight years, Hyundai Motor has fallen from its peak to the bottom in China.

According to data from the China Passenger Car Association, in the first half of this year, a total of 133,900 Korean cars were sold in China, down 18.5% from the same period last year. Among them, Beijing Hyundai's total sales were 91,500 units, down 19.36% from the same period last year.

Looking back, the Sino-Korean joint venture Beijing Hyundai Motor Co., Ltd. was officially established in 2002. The following year, with the launch of its first model, the Sonata, Hyundai Motor experienced explosive growth in China. In 2013, its annual sales in China exceeded 1 million for the first time.

However, affected by the THAAD incident, Hyundai Motor has never been able to regain its original market share. In 2016, their total sales in China reached a peak of 1.14 million vehicles, while in 2023 it was only 257,000 vehicles, a drop of 77.5%.

As both volume and price fell, Beijing Hyundai embarked on the path of "cutting off one's arm to save the life of a brave man", streamlining its car series in China, closing production lines, and continuing to lose weight.

On August 11 last year, Beijing Hyundai Chongqing Factory was listed on the Beijing Equity Exchange, including vehicle equipment with an annual production capacity of 300,000 vehicles and 200,000 engines, five major process workshops, factory land use rights and many real estates, with a price of 3.68 billion yuan. However, in January this year, the factory was sold for 1.62 billion yuan, a 56% discount on the original price.

In addition, this year, 5,075 assets of Renhe Engine Plant 1 also appeared on the Beijing Equity Exchange website, with a minimum transfer price of 45.6853 million yuan. The assets are located in Shunyi District, Beijing, and include idle machinery and equipment as well as inventory materials.

Beijing Hyundai used to have five factories in China, including Beijing Hyundai Shunyi Factory 1, Factory 2, Factory 3, Cangzhou Factory and Chongqing Factory, with a total planned production capacity of 1.65 million vehicles. Obviously, with the current annual sales of 257,000 vehicles, the annual production capacity of 1.65 million vehicles has long been largely idle.

Previously, Beijing Hyundai Shunyi No. 1 Factory was sold toIdeal Auto。

Can't beat domestic cars, Hyundai,KiaDomestic sales to export

Unlike Beijing Hyundai, another Korean car brand Yueda Kia has seen its sales rise against the trend this year. Hyundai and Kia are both brands under the Hyundai Motor Group.

According to data disclosed by Yueda Kia, Yueda Kia achieved vehicle sales of 166,000 units in 2023, a year-on-year increase of 31%. From January to July this year, Yueda Kia's cumulative sales reached 131,700 units, a year-on-year increase of 66.5%; the cumulative production reached 127,200 units, a year-on-year increase of 115.5%.

In fact, Yueda Kia's impressive sales figures are mainly contributed by exports. Of Yueda Kia's total sales of 166,000 vehicles last year, 86,000 were exported, a year-on-year increase of 125%, ranking first among joint venture automakers in terms of export volume.

In the first quarter of this year, Yueda Kia achieved a year-on-year growth of 76.9% with sales of over 50,000 vehicles. Among them, sales in the Chinese market accounted for only 18,665 vehicles, accounting for 37%, while sales to foreign markets accounted for as high as 63%.

Due to the weak performance of the Chinese market, Beijing Hyundai also regards export as an important direction.

In 2023, Beijing Hyundai will export more than 10,000 vehicles. In the first half of this year, Beijing Hyundai exported 13,182 vehicles, which has exceeded the level of the whole of last year, an increase of 200% year-on-year. At present, Beijing Hyundai is focusing on developing countries and markets such as the Philippines.

At the "2023 Hyundai Group CEO Investor Day" in June last year, Hyundai Motor stated that it would significantly reduce its spending in China by taking a defensive approach and focus more on high-return business areas.

However, compared with the sluggish sales in the Chinese market, Hyundai Group sold about 7.34 million vehicles worldwide in 2023, second only to China in the global sales ranking.ToyotaHyundai Motor's financial report shows that in the second quarter of this year, Hyundai Motor achieved its highest quarterly revenue ever, up 6.6% year-on-year to 45.02 trillion won.

In terms of sales distribution, it has achieved significant growth in the four major markets of South Korea, the United States, Europe and India. Among them, Hyundai's sales in the South Korean market increased by 10.6%, reaching 688,000 vehicles.

"Currently, the foreign automobile market is still dominated by fuel vehicles. Although Hyundai cars are not as technologically advanced and have less brand influence than German and Japanese cars, their advantage is their low prices. Therefore, Hyundai's products are more in line with foreign market demand," Zhang Xiang, an automobile industry analyst, explained to the author of Prism.

A person in charge of Hyundai Motor Group's China public relations department said: "Hyundai Motor has indeed not kept up with the pace of electrification in China, but globally, Hyundai Motor is still in an upward stage. As the number of vehicles increases, the brand power is also improving."

Today, Hyundai Motor is also trying to change its brand perception in the minds of domestic consumers. One of the actions is to introduce the electric brand IONIQ 5N model. The above-mentioned person from the Hyundai Motor Group China Public Relations Department said that in the global field, Hyundai Motor's electrification still has a foundation. "Now it is mainly imported, first get the recognition of the circle, the car play and car knowledge people, with such a foundation, and also do brand promotion."

"Hyundai's factory production capacity in China is not fully utilized, so it has to use domestic production capacity for export. But if this continues in the long run, it will inevitably affect dealers, and the number of domestic dealers will be greatly reduced," Zhang Xiang believes.

Against the backdrop of declining sales, how to properly handle relationships with dealers will become an important challenge for joint venture automakers.