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on september 23, the china automobile dealers association issued a document stating that the ongoing "price war" has left auto dealers in a quagmire, especially facing the prominent problem of extremely tight liquidity. the china automobile dealers association has formally submitted an "emergency report on the current financial difficulties and closure risks faced by auto dealers" to relevant government departments.

in the statement, the china automobile dealers association pointed out the two major problems currently faced by automobile dealers: one is that factors such as excessive inventory force dealers to sell at low prices; the other is the risk of a broken capital chain due to losses.

the china automobile dealers association calls on relevant government departments to pay close attention to the current financial difficulties and closure risks faced by the automobile dealership sector, and to decisively adopt phased financial relief policy measures.

from last year to now, the domestic auto market has been caught in one fierce "price war" after another. behind this seemingly lively and prosperous competition, the survival of auto dealers has deteriorated sharply, and the entire auto distribution industry has been shrouded in a haze.

it should be pointed out that dealer bankruptcy incidents often seriously infringe on consumer interests. some dealers with financial difficulties will mortgage vehicles in exchange for cash flow before selling them, which often results in consumers being unable to pick up the car or register it after paying the full amount, and ultimately being forced to embark on a long road of rights protection. therefore, the operational stability of auto dealers is of great importance.

dealers stuck in a quagmire

"if the dealers' situation was not really extremely urgent, the association would not have issued such an announcement. there are too many dealers who have encountered difficulties and asked the association for help. the association conducted sufficient research before reaching this conclusion." an insider of the china automobile dealers association told the reporter from the paper.

according to the official website, the china automobile dealers association is a national-level corporate organization in the automobile distribution industry registered with the ministry of civil affairs. it is a national automobile service trade industry association voluntarily participated by automobile (including used car) sales companies, sales departments of automobile manufacturers, and automobile multinational companies' institutions in china. it is headquartered in beijing. it was formally approved by the ministry of civil affairs in 1991.

last year, auto 4s stores closed down frequently. in 2024, leading regional dealers encountered financial crises one after another, and mainstream auto brand stores in many places closed down.

in january this year, guangdong yongao investment group co., ltd. was exposed to the news that many of its 4s stores had closed down. on february 29, the company publicly stated: "due to poor management and heavy debts, the company's business cannot be carried out normally... it has decided to officially close from march 1, 2024."

in june this year, senfeng group, a well-known large-scale automobile dealer in jiangsu province, encountered a financial crisis. the company later acknowledged the rumor on its official website and stated that since the group's financial situation had problems, the group has actively communicated with oems, financial institutions and customers, and will actively respond and strive to get out of the predicament.

in fact, since last year, declining profitability has become the main tone of the industry.

the price war has severely squeezed the profit margins of dealers, and the price inversion of new cars is serious. the "2024 first half national automobile dealer survival status survey report" previously released by the china automobile dealers association shows that the "price-for-volume" strategy of automakers has brought about an intuitive negative effect, and the profits of all dealers have shrunk significantly. in the first half of the year, the loss rate of domestic auto dealers was as high as 50.8%, while the profit rate was only 35.4%. the loss area has significantly expanded compared with the previous year, and some dealers are already in a deficit operation state, and the risk has further increased.

at the same time, the automobile dealer sector in the secondary market was not spared, with stock prices and market capitalizations generally suffering heavy losses. dealer giants such as pangda and guanghui were forced to delist.

price war muddies the reservoir

how does the “price war” affect dealers?

for a long time, in the automobile distribution system, dealers have been regarded as the "reservoir" of automobile companies. automobile companies wholesale vehicles to dealers, and dealers adjust the selling price according to local market conditions and sell them to consumers. this is equivalent to the transfer of heavy assets by automobile companies to dealers, which can help automobile companies alleviate financial pressure to a great extent.

in order to achieve the annual sales target, manufacturers often set high sales targets for dealers, and more powerful manufacturers will continue to push large quantities of inventory to dealers, otherwise it will be difficult for dealers to get rebates from manufacturers at the end of the year. rebates are an important source of profit for dealers.

as the price war continues, dealers have to follow suit and lower prices to sell cars and sell off inventory in order to achieve sales targets, which leads to a serious inverted purchase and sales price. the more dealers sell, the more they lose.

but at the same time, the automobile distribution industry is a capital-intensive industry with a high proportion of private enterprises. an insider in the automobile dealer industry revealed to the reporter of the paper that "dealers generally have a very high debt-to-asset ratio, and some have even achieved 80% or even 90% through various means."

in the case of poor profitability, dealers also face the pressure of difficulty in fulfilling financing contracts when they mature, which leads to a sharp increase in the risk of their capital chain breaking.

data from the china automobile dealers association shows that as of august this year, dealers' sales-to-purchase ratio has reached -22.8%, a further increase of 10.7 percentage points from the same period last year. according to data analysis by experts from the association, the overall discount rate in the new car market was 17.4% in august.from january to august this year, the "price war" has caused a cumulative loss of 138 billion yuan in the overall retail sales of the new car market., which has a great impact on the healthy development of the industry.

dealers can't save themselves, but it's still hard to reverse the trend

in fact, the dealers are not without active self-help efforts.

previously, many brand dealers had issued urgent appeals to manufacturers to suspend purchases and reduce sales targets in order to cope with increasingly severe inventory pressure and capital shortage problems.

in may this year,porschethe joint boycott of dealers in china has attracted a lot of attention. it is reported that in order to complete sales targets, porsche china chose to push inventory to dealers, which brought huge financial pressure to dealers, leading to the intensification of conflicts between porsche china and dealers. some porsche dealers in china launched protests and boycotts, stopped picking up cars, and "forced the palace" on the german headquarters, demanding that porsche headquarters provide subsidies and replace relevant chinese executives.

transforming to new energy is the most commonly mentioned path to self-help. however, in the eyes of many practitioners, it is extremely difficult for dealers to transform, especially for companies that started late.

a henan dealer told the paper that "at any time, popular brands will have very strict requirements to join the network. for brands like us that have invested all their resources in old brands, we need to clear inventory and redecorate if we want to change our storefronts. some brands have high requirements and almost require us to tear down the old store and rebuild it, but the current funds can't support our transformation at all."

whether closing down or changing the car brand, dealers face a series of practical problems in asset depreciation, handling of inventory vehicles and after-sales spare parts, oem rebates, customer rights, employee layoffs, etc. therefore, many dealers have no choice but to passively wait for oems to adjust their product portfolios and sales policies to boost sales.

in fact, even dealers who focus on new energy vehicles do not have an easy life.

recently, electric vehicle dealer aochuan holdings submitted an ipo application to the u.s. securities and exchange commission.

the prospectus shows that in the fiscal year 2022 ending september 30, 2022 and the fiscal year 2023 ending september 30, 2023, aochuang holdings achieved revenue of us$76.9489 million and us$68.1336 million, a year-on-year decline of 11% in fiscal year 2023; net profit was us$949,600 and us$-us$7,800, respectively.

in the first half of fiscal year 2024 ending march 31, 2024, its revenue was us$33.1897 million, a year-on-year decrease of 4%; net profit fell from us$71,300 in the same period last year to us$-399,400, a year-on-year decrease of 660%.

the company said that in 2023, there was an oversupply of electric vehicles in the market, which put significant downward pressure on the retail prices of electric vehicles. competitors started a price war to compete for market share, causing aotron holdings to lose orders and had to lower its retail prices (including service prices) to compete, which led to a further decline in revenue.