news

한어Русский языкEnglishFrançaisIndonesianSanskrit日本語DeutschPortuguêsΕλληνικάespañolItalianoSuomalainenLatina

the price war has finally hit the artery.

on september 23, the official weibo account of the china automobile dealers association stated that in recent times, the association has received feedback from a large number of member companies that the drastic changes in the automobile market brought about by factors such as the ongoing "price war" have caused automobile dealers to be stuck in a quagmire. they are generally operating with cash flow deficits and the risk of capital chain rupture has increased, and it is difficult for them to escape the dilemma of survival.

the life-and-death price war among car manufacturers has already reached a dilemma of killing one thousand enemies and losing eight hundred of their own - the opponents are still holding on, but their own dealers have begun to face widespread financial difficulties and risks of closure.

it’s not that dealers have not been warned. at the end of august, zhongsheng holdings, the country’s number one automobile dealer group, released its semi-annual report, with net profit continuing its downward trend, plunging 47.5% year-on-year. guanghui automobile, the country’s number two automobile dealer group, was delisted because its daily closing price was below 1 yuan for 20 consecutive trading days, triggering a delisting at par value. its market value has fallen by nearly 94% from its peak.

in this price war that lasted throughout the year, dealers at the end of the automobile industry chain seemed to be performing a play "song of a mortal", suffering from both ends, trying their best to bear the most, but unable to earn money or have a say.

and judging from the current price war among car manufacturers, it may not be a short-term thing for dealers to suffer...

every car model is on sale at a record low price, and dealers are carrying the burden

the main theme for auto dealers in the first half of 2024 is "double decline in revenue and profits."

except for zhongsheng group and century united, which achieved a slight increase in revenue, the revenue of all other leading companies fell sharply - yongda automobile fell 13% year-on-year, guanghui baosight fell 18.7% year-on-year, and meida automobile fell 24.4% year-on-year.

in terms of profits, zhongsheng and yongda fell by 47.5% and 72.6% year-on-year respectively, while guanghui and meidong saw a year-on-year decline of more than 100%. more than half of their dealers are in a loss-making state, and the degree of profit fracture is enough to send patients to the icu.

the reasons given by several companies in their annual reports are all the same, that is, fierce price competition has squeezed profit margins.

firstly, the car manufacturers that are engaged in a price war have set sales targets for dealers that are not proportional to the support they provide. at a time when competition is fierce and new car sales are already unsustainable, there are always phenomena such as forced inventory pressure and delayed rebates. dealers are under too much financial pressure and are even forced to "close, stop and transfer" due to continuous losses, resulting in one-time losses and expenses.

on the other hand, there is the serious "price inversion" in the price war.

those who are willing to wait and see will make a lot of money in 2024. however, behind the sense of satisfaction of "making a lot of money through big promotions", in addition to the indignation of old car owners about being backstabbed, the dealers have the most negative emotions.

after all, these huge price cuts of tens of thousands of yuan are an extreme squeeze on dealers' profit margins. they frequently engage in bundling, overstocking, and are forced to sell at low prices to survive. some dealers even lose more the more they sell.

according to the "emergency report on the current financial difficulties and closure risks faced by automobile dealers" released by the china automobile dealers association: "price wars" have led to a serious inverted relationship between sales and purchases. the more dealers sell, the more they lose. at the same time, they face the pressure of difficulties in fulfilling financing contracts when they expire. dealers are facing a cut-off in operating cash flow and a sharp increase in the risk of a broken capital chain.

according to the monitoring data of the "market pulse" of the china automobile dealers association, as of august this year, the highest data of dealers' sales and purchases has reached -22.8%, which has further expanded by 10.7 percentage points compared with the same period last year. according to the relevant data analysis of the association's experts, in august, the overall discount rate of the new car market was 17.4%. 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.

dealers are not the federal reserve and cannot withstand the pressure of huge deficits. the result of long-term losses is that they close their businesses to stop losses and leave the market voluntarily.

in january this year, many 4s stores of guangdong yongao, a long-established dealer group, were on the verge of bankruptcy and will officially close on march 1, 2024;

the picture shows dozens of new cars in the store of guangdong yongao investment group being towed away by the bank overnight.

in june, weijia automobile, the largest automobile trading group in zhengzhou, henan, applied to withdraw eight dongfeng nissan 4s stores from the network at one time;

in july, senfeng group, the largest automobile dealer in yancheng, jiangsu, "exploded", involving 25 brands and more than 60 4s stores, as well as wage arrears and misappropriation of user deposits. in the same month, xinfengtai, one of the largest automobile dealers in northwest china, announced the transfer of its three companies in jiangsu.

the financial difficulties faced by the automobile dealership sector are no longer a few extreme cases, but a systemic risk that is accumulating.

however, at a critical juncture when industry integration is intensifying, car manufacturers are still unable to take care of their own affairs and are simply unable to take care of the plight of dealers.

after all, even biological father and son are useless in the business world, let alone a contractual father and son relationship like party a and party b.

in the elimination round, i would rather die than my friend.

"why are you selling so much when you are losing so much money? some companies are losing money because they can't sell without a discount. this behavior would have been considered dumping in the past."

fights between car companies are not uncommon, but no one should laugh at anyone else when it comes to "selling cars at a loss."

everyone is doing this kind of thing, losing money to gain publicity. moreover, the front-end drives the back-end, and the new forces burning "venture capital" are raising prices, and even the traditional old car companies have to follow suit.

no car company wants to be squeezed out of the table. in the trillion-dollar car market, everyone wants to be the ultimate winner like didi.

however, as production capacity continues to increase and annual sales targets are set higher and higher, car manufacturers seem to have no regard for the lives of dealers at all.

according to the national automobile dealer survival status survey in the first half of 2024 released by the china automobile dealers association, the proportion of dealers suffering losses in the first half of 2024 reached 50.8%, and the proportion of dealers making profits was 35.4%.

as production and sales continue to remain unbalanced, the conflicts between dealers and car manufacturers are becoming increasingly intensified.

in may this year, it was revealed that porsche china's dealers had protested. as porsche china pressed dealers to stock up in order to complete sales targets, some dealers used the suspension of car pick-ups as a bargaining chip, demanding subsidies from the headquarters and replacement of senior executives.

in august, it was revealed that beijing hyundai's dealers across hunan province decided to suspend car pick-ups and would no longer accept vehicles automatically delivered by beijing hyundai. at the same time, they were required to resolve existing inventory and honor all previous incentive policies.

recently, bba, which once became a hot topic due to its "price-for-volume" promotion, but was also the first to reduce volume and maintain price to exit the price war, has also been rumored to have terminated its dealer agreement due to poor management of its dealers, resulting in a broken capital chain.

in july, several bba companies adjusted their product supply structure or dealer sales targets, and even offered dealers a number of substantial subsidy reduction policies, making them relatively "considerate" car manufacturers towards dealers.

according to the "national automobile dealer survival status survey report in the first half of 2024" released by the china automobile dealers association, the overall satisfaction score of dealers in the first half of the year was 69.7 points.

in 2022, before the price war started, this figure was 74.4 points, and in 2021 it was 82.7 points.

the relationship between dealers and car manufacturers is no longer as sweet as it used to be.

in 2016, china grand auto entered the 100 billion yuan dealer level with an operating income of 135.422 billion yuan. through mergers and acquisitions and listings, it successfully surpassed autonation of the united states and became the world's largest dealer group.

at that time, the relationship between dealers and manufacturers was promoted as moving towards a "partnership, brotherhood" relationship. car manufacturers began to pay attention to the profitability of dealers and implemented support measures for dealers.

statistics from the automobile circulation association that year showed that the top 100 dealers had revenues approaching 1.5 trillion yuan, up 17.9% year-on-year; the total number of online stores (4s stores) exceeded 6,000, up 8.8% year-on-year; total gross profit increased by nearly 40%; net profit increased by 34.6%; and the return on investment continued to improve.

eight years have passed, and the smooth dialogue and communication mechanism between dealers and manufacturers back then may not be as effective as the dialogue between a couple during the seven-year itch.

at the same time, more than half of the dealers suffered losses, and their basic demand became not to lose money.

dealers’ predicament is not just about “price war”

the conflict between dealers and car manufacturers is intensifying, which ultimately comes down to the mismatch between supply and demand.

as the economy recovers from a low point, the domestic market's demand for "durable consumer goods" such as automobiles has not yet been fully released. the ambitious annual sales targets set by major new energy vehicle companies last year have generally only been achieved by 30%-40% this year.

but for car manufacturers, automobiles are a typical industry of economies of scale. if they want to cover the huge investment costs, they have to continuously increase production and sales. they have to work hard to increase production capacity, and the pressure of sales can be shared among dealers.

however, the current market situation of oversupply is a difficult problem that dealers need to solve urgently but is difficult to solve.

data from the china passenger car association shows that in the first seven months of this year, the cumulative sales of new energy vehicles reached nearly 4.99 million units, a year-on-year increase of 33.7% - the data seems to be a good growth trend, but this figure was 36.2% in the same period last year, exceeded 90% in 2022, and exceeded 160% in 2021. the sales growth rate is slowing down significantly.

what's more, this is the data of new energy vehicles, which are "in the limelight". the booming new energy vehicles are an incremental market, and you can drink soup without eating meat. but for traditional car companies, this is a real zero-sum game.

although dealers are also transforming, their "big customers" are still traditional car companies.

take guanghui auto as an example. in the early days, it focused on mainstream mid-to-high-end brands such as toyota, honda, and gm. in 2016, it began to enter the luxury and super luxury market and became one of bmw's largest dealers in china.

but in 2023, guanghui auto closed nearly 50 4s stores. since 2024, the prices of luxury brands have gradually dropped, and the profit margins have been shrinking. at the same time, the upward attack of domestic brands has forced japanese fuel vehicles in the 100,000-200,000 yuan range to be forced to significantly reduce prices. the former japanese sales champion nissan sylphy, the classic comfort version only costs 69,800 yuan; the world's top-selling toyota corolla, the lowest starting price has also dropped to 79,800 yuan - just the same as qin plus dmi.

but the profit reduction caused by price reduction is not over yet. the most fatal thing is that price reduction cannot maintain volume.

according to data recently released by fitch ratings, sales of luxury and joint venture brand fuel vehicles fell sharply by 23% in the second quarter, even though retail discounts climbed to a new high (23%) in june 2024. at the same time, according to data from the china passenger car association, the market share of japanese cars in china has declined for three consecutive years, from 24.1% in 2020 to 17% in 2023.

but is it feasible for dealers to expand the new energy vehicle market to "change the cage and replace the bird"?

on the one hand, dealers' traditional major customers are still mostly joint venture brands, and most of them have a sluggish performance in the new energy market, with a limited base;

on the other hand, the "new forces" originating from the internet mostly prefer the "de-4s" direct sales model to establish direct contact with end consumers.

the founder's charismatic ppt presentation, the complete parameters of the official website, the high-frequency brand exposure of the direct-sale stores in the bustling shopping malls, and the endless marketing methods on the internet all have a much higher user reach rate than the traditional dealer model. under such circumstances, the "new forces" are not very willing to cooperate with dealers.

what's more, there are many precedents of dealers' opaque pricing, internal order grabbing, and vicious price competition. tesla founder musk even bluntly stated that "cooperating with dealers will not end well."

perhaps in third- and fourth-tier cities, dealers can still maintain market penetration with differentiated local sales strategies, but times do not stand still, the internet is also sinking, and channel changes are still rapid and drastic.

in comparison, price wars are external factors, fleas, and minor problems. expecting car manufacturers to simply control prices will not solve the root cause of their predicament.

after all, the purpose of preventing "involution" and "vicious competition" is still to strengthen the market's survival of the fittest mechanism and to smooth the exit channels for backward and inefficient production capacity, rather than to prolong the life of a severely solidified business model.

from this perspective, the deterioration of dealers' living conditions will continue to intensify.

when potential car owners in third- and fourth-tier cities also start placing orders by watching live broadcasts of new car launches, their difficulties may just begin.

references:

"new car sales suffer serious losses, and the survival situation of auto dealers is deteriorating," china industrial economic information network

"auto dealers: where to go in the era of great change", economic information daily

"double decline in profits and sales in the first half of the year became the main theme of the industry, and dealers' "hard times" continue", 21st century business herald

"profits have dropped sharply, where are the futures for auto dealers?", times finance app

"price war causes dealers' capital chain to break, new car market loses 138 billion from january to august! china automobile dealers association: submits emergency report to government departments", 21st century business herald

"how to save car dealers in trouble", china auto news network