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the beichen asian games village auto market in changping district, beijing, is not only the largest second-hand car market in china, but also a gathering place for 4s stores of various brands. since 1995, it has been like a "barometer" of the chinese auto market, witnessing the ups and downs of the market.

recently, a securities times reporter visited several auto stores in the beichen asian games village auto market. the prosperous and bustling scene of the past is no longer there. most 4s stores of most auto brands are deserted, and most sales staff are conducting online live broadcasts in the stores to promote sales.

the deserted state of offline stores is just a cross-section of the changes in the auto dealership industry. since last year, the price war in the auto market has intensified, which has put increasing pressure on auto dealers to survive. auto dealers have cut salaries, withdrawn from the network, and run away one after another. even guanghui auto, which once had a market value of 100 billion yuan, has triggered a delisting at par value.

what is the way out for those dealers who have withdrawn from the network? what will happen to the car dealers who are still holding on?

is the business model of automobile dealership still suitable for the current market? will direct sales really completely replace the automobile dealership model? as the automobile distribution industry changes, the above series of questions have become the concerns of the market.

half of car dealers are losing money

on august 28, guanghui auto, once a leading auto dealer, officially delisted. in the nine years since its listing, guanghui auto's market value plummeted from 100 billion yuan, eventually triggering a delisting at par value.

many industry insiders attributed guanghui auto's decline to the pain caused by industry changes. this year, many listed auto dealers have fallen into a "critical moment".rolls-royce, bentley, ferrari,bmwharmony auto (03836.hk), a car dealer group that produces luxury and super luxury brands such as toyota motors, toyota motors and toyota motors, issued an internal letter stating that the company is facing unprecedented operating pressure and will take emergency measures to cut salaries for all employees at a critical juncture, from the chairman to ordinary employees.

regarding the salary cut, harmony auto responded to reporters, saying that this is a phased measure for the company to actively adapt to the market environment in order to increase its ability to resist future risks.

"as long as there is green hills, there is no need to worry about running out of firewood." many car sales told reporters that if companies have room to cut wages, they can continue to survive. in the current market environment, a large number of car dealers have had to close stores and withdraw from the network.

from the closure of many 4s stores under guangdong yongao automobile group overnight; to the "runaway" of two volkswagen 4s stores in hebi, henan; toporsche、beijing hyundaidealers have been "forcing the emperor" on car companies... since january, there have been constant reports of car dealers closing stores and withdrawing from the network across the country.

public data shows that in the first half of this year, nearly 2,000 4s stores were withdrawn from the network or closed nationwide, almost the same number as the whole of last year.

the "2024 first half national auto dealer survival status survey report" released by the china automobile dealers association shows that in order to achieve sales targets, the auto market has seen rare high-frequency and large-scale price adjustments. "price for volume" has almost become the only way for auto dealers to complete their sales targets.

however, "trading price for volume" has also brought about an intuitive negative effect, that is, the profits of all dealers have shrunk significantly. the above report shows that in the first half of 2024, the proportion of domestic auto dealers in the red reached 50.8%, and the proportion of profit was only 35.4%. the loss area has increased significantly compared with the previous year. some dealers have already operated at a deficit, and the risk has increased.

price war brings chain reaction

"in my 25 years of working in the industry, i have never encountered such a brutal price war. not only are fuel vehicles facing life and death, but new energy vehicles are also actively or passively involved in the price war when the market is not yet fully saturated." during an interview, an auto dealer investor told the securities times reporter that under chaotic or even disorderly competition, no one will be immune and there will be no winners in a price war.

obviously, the core reason why auto dealers are in a survival crisis is still the impact of price wars. lang xuehong, deputy secretary-general of the china automobile dealers association, told the securities times reporter that the current market situation is fundamentally the result of an imbalance between production and sales. automakers generally set high sales targets that are far greater than the actual demand of consumers.

as the "reservoir" of car companies, car dealers still bear high sales tasks despite sluggish sales, which leads to high inventory. in order to seize the market share, some dealers have to sacrifice profits, cut prices for promotions, and even "price inversion" occurs.

lang xuehong analyzed that according to normal business logic, automobile sales accelerate turnover, and each turnover will bring profits, but now, most dealers will incur losses every time they turn over. the inventory financing granted by manufacturers can no longer meet the needs of dealers. automobile dealers have to obtain funds through social capital, but the corresponding interest rates are higher and the risks are greater, which will fall into a vicious circle over time.

in addition, the complex and changeable rebate policies of some automakers and the insufficient support for dealers are also key factors leading to the collective withdrawal of dealers from the network. in addition to superficial factors, some industry insiders believe that the root cause lies in the level of thinking and cognition.

"the fundamental reason why dealers have difficulty surviving is the combined result of changes in market structure and the inertial thinking of manufacturers." li jinyong, vice president of the all-china federation of industry and commerce automobile dealers chamber of commerce and chairman of the new energy vehicle committee, told a securities times reporter that the market penetration rate of new energy vehicles exceeds 50%, which means that the market share of fuel vehicles is declining sharply, and those dealers who represent fuel vehicle brands will naturally be in excess.

public data shows that in july this year, in the domestic passenger car market, the retail sales of new energy vehicles reached 878,000 units, a year-on-year increase of 36.9%; the retail sales of fuel vehicles reached 840,000 units, a year-on-year decrease of 26%. the domestic retail penetration rate of new energy passenger vehicles reached 51.1%, and the monthly retail sales exceeded that of fuel passenger vehicles for the first time, becoming the dominant force in the market.

li jinyong said that while the market structure is changing dramatically, automobile manufacturers are still relying on their inherent inertial thinking and continue to increase their sales targets.

"ten years ago, the fuel vehicle market was an incremental market, and car dealers also experienced a golden decade of stable profits. in this context, car manufacturers had absolute voice, and they used strong inventory pressure, bundling sales, and high-target rebate policies to hold dealers hostage for a long time. although the relationship between the upstream and downstream of the industry is seriously unbalanced, most dealers still acquiesce in the various strong behaviors of manufacturers under the temptation of high returns." li jinyong said that in the context of a very competitive market, if car companies still do not make any changes and stick to past thinking, it will lead to a large number of dealers closing stores and withdrawing from the network.

switching to new energy becomes a trend

the collective crisis faced by auto dealers is a chain reaction brought about by major changes in the industry, and is also an inevitable impact caused by the large-scale development of new energy vehicles.

what is the way forward for those dealers who are forced to close their stores due to poor management, and those who voluntarily withdraw from the network? many industry insiders give the same answer, that is, to turn to acting as agents for new energy vehicle brands.

"i was forced to transform," tao haibin, an investor and director of suzhou guangcheng sudi new energy vehicle sales and service co., ltd., told the securities times reporter that he was still a member of dongfeng motor corporation a few years ago.renaultdealer, but because dongfeng renault announced its complete withdrawal from the chinese market in 2020, it had to find other ways out.

tao haibin said that many fuel vehicle brands approached him at that time, includingdongfeng motorthe group also hoped that he could continue to represent other brands within the group, but he refused.

"i was thinking at the time that i should stop dreaming about driving a fuel car." tao haibin said that in the difficult moment of decision, his truest thought was: either leave the auto dealership industry completely, or continue to do it by acting as an agent for a strong new energy brand.

in fact, there are not many options for being an agent for new energy vehicle brands, after all, new car manufacturers generally adopt a direct sales model. based on multiple considerations, tao haibin chose to joinbydit took two years to officially obtain the dealership qualification.

there are many car dealers like tao haibin who have switched to new energy. lang xuehong analyzed that the building structure of most car dealerships is limited. if they do not continue to provide car sales services, it is difficult to switch to other uses. therefore, most dealers who have withdrawn from the network are considering acting as agents for new brands.

"there are only a handful of fuel vehicle dealers who are still profitable, and it is difficult for those dealers who have withdrawn from the network to enter the new network. as agents for new energy brands, we can only choose a few leading companies, such as byd and huawei." lang xuehong revealed to reporters that most dealers have realized that new energy is the general trend, but the opportunities to enter the channel are relatively limited. brands such as byd are also carefully screening, and some smaller dealers are not even eligible to apply for network access.

obviously, it is not easy to switch to new energy. in fact, even if you become an agent for a new energy vehicle brand, it does not mean that you have entered a "safe box".

li jinyong pointed out that for a new energy vehicle with a price of about 100,000 yuan, its reasonable gross profit margin should be 8% to 10%, but in fact its gross profit margin is only 2% to 3%. coupled with the low number of new energy vehicles, short vehicle age, and small scale of after-sales business, most new energy vehicle dealers are also facing the dilemma of difficulty in making profits.

"being the agent of the leading new energy vehicle brands is actually a mixed blessing. although we have escaped the crisis of shrinking fuel vehicle market, new energy vehicle brands are also engaged in fierce price wars, making our business increasingly difficult and the profit margin is very limited."

an investor and dealer of a new energy vehicle brand confirmed the above situation to reporters and said that new energy vehicles have not yet entered the stage of overcapacity. such a disorderly price war will harm the long-term development of the industry. he called on regulatory authorities to strengthen governance and guide healthy competition in the market.

direct sales and distribution will run in parallel

as car dealers are closing stores and withdrawing from the internet, many people are beginning to focus on the opposite of the car distribution model, namely the direct sales model, believing that the direct sales model will further replace the distribution model.

the industry continues to discuss the pros and cons of the above two models. at present, in addition to the new forces in car manufacturing generally adopting the direct sales model, there are also many new brands incubated by traditional car companies, such aslantu、zeekr、aionetc. adopted the direct sales model.

the direct sales model directly faces consumers, provides considerate services, and has transparent pricing, which is more conducive to manufacturers understanding consumer needs and maintaining customer relationships. however, on the contrary, the direct sales model is very expensive, with capital and personnel investment far higher than the dealership model, which brings a heavier burden and higher risks to car companies.

although the distribution model blocks direct contact between automakers and consumers, it also adds a barrier for automakers and greatly reduces capital investment. an investor of a car dealer group believes that compared with the direct sales model, auto dealers have a better understanding of local conditions and more abundant resources.

during the interview, many industry insiders emphasized to the securities times reporter that the current crisis of auto dealers does not mean that there is a problem with the model itself, nor does it mean that direct sales will completely replace the distribution model.

li jinyong believes that the dealer model is very suitable for the automotive industry. the direct sales model has not fundamentally changed car sales. it is just that its investors have changed from natural investors to car manufacturers.

"imagine if an automobile manufacturer like byd adopts a direct sales model, the company will have to bear huge risks and financial pressure." li jinyong believes that the type of distribution model adopted by a car company is related to its own development scale.

as a senior investor in automobile dealers, tao haibin gave his own judgment, "1 million vehicles is a threshold." tao haibin believes that when the annual sales of automobile companies are less than 1 million vehicles, the company can choose direct sales or the two models in parallel, but when the annual sales exceed 1 million vehicles, the company's own energy and resources will be too much to split, and it must rely on the distribution model.

cui dongshu, secretary general of the national passenger car market information joint conference, told the securities times reporter that the direct sales model is not a panacea. the auto industry has generally adopted the distribution model worldwide. compared with other industries, the power of the platform economy is growing stronger. therefore, current auto dealers need to optimize and adjust to solve the crisis they are facing. in the long run, the auto distribution model still has room for development.

change requires collaboration from all sides

it has basically become a consensus in the industry that the auto dealership model will not be replaced by direct sales. however, facing the current pain, how should auto dealers transform and overcome difficulties?

li jinyong believes that the pressure on auto dealers needs to be relieved by auto companies. for fuel vehicle companies, they need to return to rationality and set reasonable sales targets instead of blindly reducing inventory; for new energy companies, both auto companies and dealers need to establish strategic thinking. in the short term, neither side may make money, but as the scale expands, the cost of new energy vehicles will decrease, and then enter a track of healthy development.

lang xuehong also believes that automakers need to reduce the burden on dealers. "for example, automakers have already reduced the price of their products, but still require dealers to purchase goods according to the suggested retail price of new cars. this is a very unreasonable requirement." lang xuehong said that in addition to reducing the purchase price of cars at the same time, it is recommended that automakers clarify the rebate policy. a vague and changeable rebate policy will also aggravate the conflict between the two sides.

in fact, the closure of dealers is harmful to automakers. it will not only damage the brand image, but also bring challenges to after-sales service. based on this consideration, automakers also need to provide more guarantees for the survival of dealers.

recently, luxury brands such as bmw have set an example. in july this year, bmw china announced that in the second half of the year, bmw will support dealers to take steady steps, withdraw from price wars, and further implement the "reducing volume to maintain prices" policy to cope with the losses of dealer stores caused by price wars.

the industry generally gives a positive evaluation of bmw's approach. li jinyong believes that automakers cannot stick to their old goals, but must recognize the reality and balance their own goal planning with a rational attitude in order to achieve sustainable development.

in other words, clearing out those less competitive dealers is also beneficial to the healthy development of the market.

as for dealers themselves, change cannot rely solely on the promotion of regulatory authorities, industry associations, and car companies, but also requires their own efforts.

recently, many automobile dealer groups have been actively reducing the number of new car sales outlets and increasing their layout of after-sales maintenance. the most obvious change is the active expansion of the construction of body repair centers.

it can be seen from the financial statements released by zhongsheng group (00881.hk) and yongda automobile (03669.hk) that when the profits of new car sales business hit bottom, the after-sales business covering sub-modules such as body repair, car beauty, cleaning and maintenance, and color change has become the main profit track for dealers.

li jinyong analyzed that china has more than 400 million cars in stock. even if the new fuel car market is declining, the existing stock is still huge. dealers can achieve sustainable development by focusing on the after-sales field without too much risk.

lang xuehong believes that in addition to the after-sales service, the used car market is also an important area for dealers to explore. at present, dealers' layout in the used car market is still blank, with obvious shortcomings. it is recommended that capable dealers can also consider laying out more used car businesses.

editor/fan hongwei