In the past, dealers who wanted to obtain authorization for a luxury brand store had to pay more than ten million yuan in public relations fees. Some car companies even required dealers to have government resources as one of the hard conditions for joining. The extremely high threshold also meant a super return.
In the golden age, luxury brand dealers often made a fortune. However, in the first half of this year, Porsche dealers forced the German headquarters to make a fuss, demanding a change of executives and subsidies; the once glorious auto dealer giant Guanghui Auto was delisted, and its market value of hundreds of billions of yuan fell to a fraction. According to insiders who revealed to reporters from the 21st Century Economic Report, 90% of the dealers of one of the BBA brands are facing losses. The era of "lying and winning" by joining luxury brands has passed, and even the once wealthy dealers have started to live a "hard life". Most domestic dealers are walking on thin ice.
A few days ago, the China Automobile Dealers Association issued a statement saying that the association has received a large number of member companies reflecting that the continuous "price war" and other factors have brought drastic changes to the automobile market, making automobile dealers fall into a quagmire and face extremely tight capital liquidity problems. The association has also submitted an "Emergency Report on the Current Situation of Automobile Dealers Facing Financial Difficulties and Closure Risks" (hereinafter referred to as the "Report") to the relevant government departments based on this, providing an effective basis for government decision-making.
Since the beginning of last year, the Chinese car market has fallen into an unprecedented price war, with a large scale and a long time line. It has not stopped to this day, affecting every link of the Chinese automobile industry's ecosystem, with dealers being the first to be hit.
The main factory's sales are not good, and in order to achieve sales targets, it pressures the dealers to stock up. In order to digest the inventory and activate cash flow, dealers can only reduce prices and do business at a loss. In such a vicious cycle, the operation of dealers is inevitably deteriorating.
A top dealer told reporters from the 21st Century Economic Report that at the beginning of selling cars, dealers made money from the "purchase and sales price difference". For example, a dealer bought a car with a factory-recommended price of one million yuan at a 95% discount and sold it at one million yuan, making a "purchase and sales difference" of 50,000 yuan per car. However, as the trend of dealers "fighting for sales and fighting price wars" becomes more and more intense, the "purchase and sales difference" continues to shrink. In addition, sales and after-sales are the main sources of profit for dealers.
"Starting from around 2011, the profit contribution of car sales has been decreasing year by year, while the profit proportion of factory rebates has been increasing year by year. Around 2015, the profit of the dealership in sales basically relied entirely on factory rebates, and some stores could even account for 100%." The above person pointed out that under the almost crazy market sentiment, risks are gradually exposed. Some dealerships with extremely tight cash flow are about to hold on, but they still take risks and continue to borrow more money and allocate more cars. Everyone is gambling on the factory's sales rebates, and then using the rebates to make up for the losses.
Drinking poison to quench thirst will eventually lead to a blowout.
According to the analysis of automobile circulation industry analysts, this year's new car price war has caused heavy losses to car companies and dealers. If calculated based on the market discounts and new car transaction prices in January 2023, the overall new car market retail loss from January to August this year is 138 billion yuan.
From the research data and conclusions of "Dealer Voice" and "Survival Status Survey" and other research, in the first half of 2024, more than half of the automobile dealers nationwide are facing losses, with a proportion of 50.8%, an increase of 7.3% compared to the same period last year. Dealers, especially traditional fuel car dealers, generally have unreasonable outlets, frequent inventory pressure, tense manufacturer relationships, and insufficient profitability. The entire automobile industry ecosystem has seriously deteriorated.The data from the previously conducted year-end performance statistics of eight listed automobile dealership groups shows that Zhengtong Auto suffered a loss of over 700 million yuan in the first half of the year, a year-on-year decline of 80.6%, with the half-yearly loss approaching the full-year loss of 820 million yuan last year. Guanghui Auto, Meidong Auto, and Hexie Auto saw their net profits drop by more than 100% year-on-year, with losses of 63 million yuan, 27 million yuan, and 76 million yuan respectively in the first half of the year.
The report also points out that the new car sales of current automobile dealers are facing large-scale losses, with a general situation of cash flow deficit operations and an intensified risk of capital chain rupture, making it difficult to break free from the predicament of survival.
The two main issues faced at this stage are: first, the dual pressures of sluggish consumption and the manufacturer's wholesale volume keep the dealers' inventory at a high level. To reduce capital pressure and financing costs, dealers are forced to sell at low prices to survive; second, the "price war" leads to a severe reversal of purchase and sales, with dealers losing more the more they sell. At the same time, they face the pressure of difficulties in fulfilling financing maturities, leading to a break in operating cash flow and a sharp increase in the risk of capital chain rupture. The current available working capital for dealers has been compressed to the limit.
In fact, the fierce price war is fundamentally a series of chain reactions triggered by a severe imbalance of supply and demand. Overcapacity but insufficient demand causes more players to share a smaller cake.
Therefore, in the view of the China Automobile Dealers Association, to promote the long-term stable prosperity of the automobile market, it is necessary to solve the blockage from the supply and demand relationship and improve the adaptability of supply and demand. From a long-term perspective, the manufacturer should focus on product competitiveness, channels, and market innovation; from a short-term perspective, the China Automobile Dealers Association urges the relevant government departments to take decisive phased financial relief policies to help the main body of dealers get through the difficulties.