Car Dealer Enters Transformation "Painful Period"

Chinese car dealers are going through a massive "labor pain"!

China Automobile Dealers Association's latest release of China's auto dealership stocks early warning index shows that April stocks early warning index was 60.5%, although a drop of 7 percentage points from last month, it is still above the 50% alert level.

Since entering 2015, the inventory index of dealer stocks early warning index has remained high, and the grim situation that has continued from 2014 seems to have not been eased. In this context, not only small and medium-sized distributors have been struggling to survive, including the distribution of the huge Auto Group Co., Ltd. (601258.SH, hereinafter referred to as the giant group), Yaxia Auto Co., Ltd. (002607.SZ), and Rio Tinto Group. Business Group also experienced varying degrees of decline in net profit or even losses. From the perspective of analysts, China's auto market "returns suddenly" to rational growth is undoubtedly one of the main reasons for the current plight of dealers, but from a historical and deeper perspective, China's auto production capacity has expanded radically over the past few years. It is "starter".

The situation is not decreasing

The high inventory pressure of car dealers began in 2014, but by 2015, this situation has not only not improved but has become more serious.

According to data from the China Association of Automobile Manufacturers, China’s auto sales in April were 1,94,550,000 units, down 0.49% year-on-year; from January to April, sales were 8,144,800 units, down 6.30% year-on-year. While the overall sales volume declined, the dealer inventory warning index did not show the same trend. The China Automobile Dealers Association showed that from January to April this year, the inventory warning index was 61.9%, 50.9%, 67.5%, and 60.5%, respectively. Always above the alert level. As of April, the dealer inventory warning index has been higher than 50% for 7 consecutive months.

As a result of this, over the past year or so, the number of sales in a certain brand or even the entire automobile market has exploded in the industry, and to a certain extent, it is based on the high inventory of dealers. However, after the growth in sales returns to rationality and even negative growth, manufacturers no longer "high pressure" dealers, but dealers' inventory pressure has still not been eased.

"Inventory pressure will bring a chain reaction: because the current overall operation of dealers is not very good, they are eager to return funds, and high inventory will not only occupy capital, but also increase costs. As a result, dealers can only sell at a reduced price. The phenomenon of price upside-down is often seen, and the price upside-down is actually the distributors are sacrificing profits for sales, which in turn exacerbates operating pressures. This vicious circle is only one of the reasons that caused dealers' current difficulties." China Automobile Dealers Association Industry Lang Xuehong, deputy secretary-general of the Ministry of Coordination, told a reporter from the China Business News. “In addition, the automotive market has entered a period of steady growth, the policy environment has become increasingly strict, the cost of dealers to build stores has been high, the challenges from e-commerce have intensified, and so on. This has brought pressure to dealers. Ultimately, the Chinese auto market has suddenly entered a new stage of development, and the profit structure of dealers has remained in barbarous growth, which is inevitably caught off guard.”

“Car dealers will continue to face multiple pressures in 2015. Whether it is policy changes or the impact of the economic environment, it is pushing the Chinese auto market into a new stage of development. The maturity of the market will inevitably go through a period of 'labor pain' and The process of survival of the fittest.” Lang Xuehong said: “At present, all dealer groups are undergoing transformation to find new profit growth points. For the entire circulation sector, the exploration of these large enterprises has a certain degree of representation and demonstration.”

Expansion pain

"The situation of dealers' high inventory in 2015 has not improved. From the perspective of the market, whether it is downgrading stocks or transforming the profit structure, the initiative is not entirely in the hands of dealers. The root cause of these problems lies in the entire market. The supply and demand structure is seriously out of balance." Long Xuehong told reporters.

In fact, the problems faced by dealers are long-standing, but they are not prominent under the background of explosive growth in the Chinese auto market. For more than ten years, whether it is the production capacity of automobile manufacturers, the number of dealers, or the overall sales of automobiles, they have all increased at the same time. At present, the market demand has returned to rationality, but the production capacity and the number of dealers seem to have encountered "inertia". The role can not stop the expansion trend, resulting in the current dilemma of the dealer.

In the “golden growth period” of the Chinese auto market, auto manufacturers are doing their best to expand, especially in terms of production capacity, with almost one million units as their planning. Since China’s auto sales volume increased by 37.40% year-on-year to 2,325,100 units in 2002, the overall growth rate has continued to increase, with the exception of the 2008 growth rate of 6.70% due to the financial crisis. Growth, which has attracted most automakers in the world to start production or start capacity expansion plans in China.

However, from 2011 to 2012, the Chinese auto market accidentally entered the “micro-growth” stage, with growth rates of 2.15% and 4.33% respectively, but this did not stop the auto manufacturers’ strategy of large-scale production expansion in China, out of China’s auto industry. Confidence in the development prospects of the market has even led the way in this round of growth. Before and after 2012, various auto manufacturers have “expanded” their plans for expansion. According to reports, in 2012, 60% of the global investment in new vehicle production has flowed to China.

This part of the new plant has been put into production since 2014, but it immediately suffered a rational return of the Chinese auto market. Before this year, the imbalance between supply and demand has already emerged. The China Automobile Industry Association recently stated publicly that it is expected that the national automobile production capacity will reach 30 million units in 2015. If we take into account the projects that were approved by the state for the past year and a period of time in the future, this year's production capacity will rise to a new level. At present, the domestic automobile capacity utilization rate is about 70% to 80%.

As a result, the price system and market competition, including plant and commercial relations, affected by the supply and demand relationship all fall into a vicious circle with the increasingly serious supply exceeding demand. In order to boost sales and avoid overcapacity, automakers have been expanding channels while expanding production.

Data shows that in the past 10 years, China’s auto sales have grown by less than 4 times, but the number of dealers has increased by nearly 5 times. In this way, not only is the competition between brands rising to the white-hot stage, the competition between brands has become increasingly fierce, and dealers are faced with increasing sales targets and have to adopt “one enemy injured and eight one hundred”. Constant price cuts to maintain sales, terminal price war "played" for many years, inventory is still high, the dealer's living conditions are deteriorating.

Broken arm to survive?

At the beginning of the year, the National Chamber of Commerce and Industry Automobile Dealers Chamber of Commerce issued the “Report on the Satisfaction Survey of Chinese Automobile Dealers to Suppliers (2014)”, stating that the profit-making dealers in 2014 had fallen from 70% in 2009 to nearly 30%, and the sample survey results were also Shows that 55% of dealers can not profit in the new car sales.

In 2015, the plight of dealers has gradually become more and more difficult. Therefore, people in the industry also refer to 2015 as "digested inventory year." However, from the previous four months, there was little success.

“Now the overall market demand is weak, and it has caught up with the massive release of car manufacturers’ production capacity. The contradiction between auto factories and businesses has also been continuously intensified. For dealers, the negative factors in recent years are continuously superimposed, but similar to the growth of sales of new energy vehicles and the like. The favorable factors have not yet begun to exert force, or that the degree of its exertion is far from enough to make up for the gap.” Yan Jinghui, deputy general manager of the Beichen Yayuncun Automotive Trading Market Center, said, “The continued increase in the inventory warning index means an extension of the sales cycle, distribution Businesses are no longer able to bear all the costs incurred, and of course they cannot rely on inventory to help automakers to sell as they have done in the past. In the past 4 months, sales of some brands, including luxury brands, have seen a rare decline, to a certain degree. Say that the dealer has already begun to refuse to purchase."

Auto manufacturers are obviously aware of their own channel issues, will be reduced this year's sales target, adjust the business policy, and adopt "government down" and other ways to help dealers digest inventory. However, in the eyes of dealers, these measures are far from enough in the market terminal. Self-serving automobile manufacturers cannot fundamentally eliminate the dealer's survival warning. All dealers can only combine their own characteristics, seek transformation, to adapt to the new market environment.

Since the second half of 2014, many dealer groups, including the giant group, Yaxia Auto Co., Ltd., and China Import Auto Trading Co., Ltd., have tried to import vehicles horizontally. Since the current policy is unclear, various distributor groups are basically trying their best, but according to informed sources, parallel imported vehicles currently have higher profits in new car sales, which is a very good new profit growth point for distributor groups. The group is interested in expanding this business. In addition, some distributor groups have begun to integrate resources to try various operating models such as auto supermarkets, online and offline joint marketing, and car rental, including sales and promotion of new energy vehicles. On the issue of newly-built stores, some brands and distributor groups have reached an agreement and no longer insist on scale. Instead, they vigorously carried out the “light asset” model to save construction costs and time.

In Yan Jinghui's view, the various dealer groups are currently looking for a transition, but they are basically at the exploratory stage. There are innovations as well as loss. There is no widely accepted molding model. Moreover, the reshaping of the pattern in the circulation field requires the further support of automobile manufacturers and a common breakthrough.

“The distributors can't wait for the maturity of the market when they are facing difficulties, but they must participate in and create. In the past, the market has grown at a high rate. Auto manufacturers and distributor groups have all pursued speed and comprehensive coverage, and seized the market in the form of extensive operations. However, at this stage, they have to adjust their development strategies and instead seek strength, refinement, and stability, and for some markets that are relatively isolated and unable to form a concerted effort with other regional stores, dealer groups have begun to choose to give up. In the area of ​​circulation, we are innovating through refined management and Internet thinking and exploring more potentials.” Lang Xuehong said, “The dealers have entered a transitional period and will face more trade-offs in this process, even A broken arm survives."