Car Dealers: Nearly 30% of car dealers are struggling to make a profit good business 2024
In the past, car dealerships were among the most lucrative businesses in the market. In that era when cars were scarce, car dealers controlled the car channels and became the bridge between consumers and car manufacturers. Many car dealers made a fortune through this bridge.
However, recently some media revealed that nearly 30% of car dealers are struggling to make a profit, which makes people wonder if selling cars is no longer a good business?
1. Nearly 30% of car dealers find it difficult to make a profit?
According to the 21st Century Business Herald, Guanghui Auto recently staged a “ground-to-ceiling” market, with its stock price rising from the lower limit to the upper limit, reporting 0.78 yuan, After dropping below 1 yuan for the fourth consecutive trading day.
According to the exchange’s regulations, if a stock has a “daily closing price of less than 1 yuan for 20 consecutive trading days”, the company’s stocks and convertible bonds will be delisted by the exchange due to the triggering of a trading-related forced delisting situation.
China Automobile Car Dealers Association
Initially, the focus was on popular mid-to-high-end brands like Toyota, Honda, and GM. In 2016, the company expanded into the luxury and ultra-luxury segments by acquiring Baosight Auto and Dalian Zunrong.
Additionally, it ventured into passenger car financing, leasing, and the used car market.
According to the data of the China Automobile Car Dealers Association, among the major dealer groups in 2023, Guanghui Auto ranked first in the industry in terms of total passenger Ranked second in car sales and also second in revenue scale.
Guanghui Auto’s Operating Income
In the first quarter of this year, Guanghui Auto’s operating income fell 11.49% year-on-year to 27.79 billion yuan; net profit was 70.9405 million yuan, down 86.61% year-on-year. Officials said that during the reporting period, the profitability of the entire vehicle declined due to the industry price war, and traditional fuel vehicles were squeezed by the new energy vehicle market.
Although revenue decreased, costs remained relatively fixed, leading to a significant drop in net profit attributable to the shareholders of the listed company.
Guanghui Auto’s performance is a microcosm of the transformation and change in the automotive industry over the past 20 years. At that time, Car Dealers generally “could make back their investment in one year of setting up a store”, but now nearly 30% of them find it difficult to make a profit, and the era of making money without doing anything is over.
Automotive Industry
From the nautomotive industry,ews of bankruptcy of Zhejiang Zhongtong Group at the beginning of 2023 and the closure of all its 19 4S stores, to the delisting of Pangda Group’s shares in the middle of the year and the termination of the listing of the company’s shares, to the serious crisis of Guangdong Yongao Investment Group Co., Ltd.
at the beginning of 2024, many of its 4S stores have suspended operations and new car deliveries, and even Porsche Car Dealers have collectively forced the OEM to abdicate.
With the major reshuffle of the automotive industry, although the production and sales of automobiles have exceeded 30 million, Car Dealers facing the terminal consumer market are still moving forward in difficulties.
China Auto News, Huang Yi (pseudonym)
According to a report by China Auto News, Huang Yi (pseudonym), an investor of a joint venture brand car dealer, told China Auto News that under normal operation, the store The company fluctuates between making a loss and breaking even each year. Even when it does incur losses, they are typically only in the range of one to two million yuan. However, withdrawing from the network could result in losses amounting to tens of millions of yuan.
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In addition to the above expenses, Car Dealers are still a labor-intensive industry. A store has dozens or hundreds of employees. With an average annual salary of 100,000 yuan, the total compensation for each individual could amount to tens of thousands or even hundreds of thousands of yuan.
According to data from the China Car Dealers Association, in May this year, the inventory warning index of Chinese auto dealers was 58.2%, up 2.8 percentage points year-on-year, above the warning line, and dealers are under great inventory pressure.
In fact, industry insiders revealed that some Car Dealers even have inventory depths of up to 3 months, which puts automakers under financial pressure and risks.
2. Selling cars is no longer a good business?
Over the past few decades, the Chinese auto market has undergone a transformation from a scarce resource to a mass consumer product, and the auto sales industry has also undergone earth-shaking changes.
Auto sales used to be an enviable high-profit industry, but today, nearly 30% of Car Dealers find it difficult to make a profit. What industry shifts and challenges lie behind this situation?
First, car sales have enjoyed a golden age. In the early stages of the development of China’s car sales market, cars, as a scarce commodity, far exceeded the scope of basic transportation and were more regarded as a luxury, symbolizing wealth and social status.
During this period, due to the limited supply of cars and the growing demand, car sales prices were high and the profit margins were huge. As a result, car sales emerged as one of the most lucrative industries of the time, drawing significant investments and talent.
China’s Economy, Residents’ Income
With the rapid growth of China’s economy, residents’ income levels have significantly increased, and cars have gradually changed from luxury goods to ordinary consumer goods, entering thousands of households.
This change has greatly promoted the expansion of the automobile market and led to a surge in automobile sales. Although the overall competition in the automobile market is becoming increasingly fierce and profit margins have been compressed, the mid-to-high-end automobile market still maintains a high profit margin.
This part of the market is aimed at consumers who have higher requirements for automobile quality, brand and service. Customers are prepared to pay extra for an enhanced driving experience, greater brand prestige, and superior service.
Earn Money Without Doing Much
Therefore, even with the gradual popularization of automobiles and intensified market competition, the automobile sales industry, especially the mid-to-high-end automobile sales field, still maintains a relatively superior position and has become an industry where one can supposedly ‘earn money without doing much.
Secondly, the price war has brought an unprecedented impact on Car Dealers.Since last year, the automotive industry has seen a significant intensification of the price war. In order to compete for market share, major auto brands have adopted price reduction strategies, which has undoubtedly greatly compressed the profit margins of auto sales companies.
The model that originally relied on sales growth and price difference profit has become increasingly fragile under the impact of the price war, and it has become increasingly difficult for companies to make profits.
Sales Channels
The continuous compression of profits has directly led to a decline in the profitability of Car Dealers. Under the dual pressure of rising costs and falling sales prices, Car Dealers’ profit margins have been severely squeezed.
This has not only affected Car Dealers’ current operations, but also had an adverse impact on their long-term development. In order to maintain operations, some Car Dealers have to take short-term measures such as cutting costs and reducing service quality, which undoubtedly further weakens their market competitiveness.
At the same time, the right of Car Dealers to speak in front of car manufacturers is gradually weakening. With the reconstruction and integration of the automotive industry supply chain, car manufacturers have increasingly stronger control over sales channels, while dealers’ bargaining power and autonomy have been relatively weakened.
This means that when faced with various policies of car manufacturers, Car Dealers can only passively accept them and cannot safeguard their own interests through effective negotiation.
During this process, many dealers had to engage in price wars in order to survive, causing a sharp decline in the profitability of the entire industry. This is also the core reason for the current low profit margin level and such a high loss rate.
New Energy Vehicles
Third, the reduction in dimensions of new energy vehicles is more pronounced.In recent years, the rapid growth of new energy vehicles has presented an unparalleled challenge to the traditional car sales model. Companies like Tesla, leading the way in this sector, have implemented a direct sales approach to bypass conventional dealerships and connect directly with consumers.
The so-called direct sales model means that manufacturers directly face consumers, reduce intermediaries, and sell cars directly online and offline. Compared with the traditional dealer system, this model has higher efficiency and stronger brand control.
For domestic new energy vehicle brands, direct sales not only help to respond quickly to market changes, but also can more directly convey brand value and enhance consumer experience.
Market Demand for Fuel Vehicles
However, the popularity of this model is undoubtedly a dimensionality reduction blow to traditional car dealers. Traditional dealers who originally relied on information asymmetry and channel monopoly to make profits have their living space greatly compressed under the direct sales model.
Because the direct sales model reduces the middle links and makes prices more transparent, the traditional profit sources of dealers have been seriously challenged.
At the same time, the traditional fuel vehicle market has low profits and fierce competition, and is even regarded as a sunset industry.
With the increasingly stringent environmental regulations and the improvement of consumers’ environmental awareness, the market demand for fuel vehicles has gradually declined, while new energy vehicles have ushered in unprecedented development opportunities.
However, for traditional dealers, emerging new energy vehicles are difficult to enter their sales channels because they often lack the professional knowledge and service system required to sell new Entering the new energy vehicle market and adapting to its system is even more challenging. This has directly led to many traditional car dealers gradually becoming abandoned by the market.
Fourth, what should traditional car dealers do?
Faced with the industry’s difficulties, car dealers must transform and upgrade from a single sales role to a comprehensive service provider that provides a full range of services. This means increasing investment in after-sales services, repairs and maintenance, personalized customization, used car transactions, financial services and other fields, and using value-added services to make up for the decline in new car sales profits.
Certainly, the market still presents some opportunities.For example, companies that were already familiar with the dealership model in the mobile phone market, such as Huawei and Xiaomi, are rapidly entering the automotive market.
Resources and Network
Xiaopeng, Weilai, Avita and other companies have also seen the advantages of the dealership model and are not only using the direct sales model, but are also beginning to explore the use of the traditional distribution model.
These companies have realized that the distribution model can more efficiently cover the market and enhance brand influence, while also being able to use the resources and networks of dealers to better serve consumers.
Yongda Auto Secured Network Authorization
For this reason, some auto dealers with faster transformation have gradually gained some opportunities. For instance, Yongda Auto secured network authorization for seven new energy brands, including Xiaopeng, Zhiji, and Xiaomi.
This not only broadened its business scope but also enhanced its operations. its market competitiveness. In 2023, Harmony Auto also secured dealer authorization from BYD for Hong Kong and Cambodia, further extending its reach in the global market.
Automobile Market
However, we must understand that “sir, times have changed”. The competitive landscape of the automobile market has undergone profound changes. In the past, when supply was less than demand, dealers had greater voice and market dominance.
But now, with the changes in market supply and demand and the diversification of consumer demand, dealers have gradually changed from active to passive, becoming the objects of choice for brands and the market.
This requires dealers to continuously improve their own strength and service level to adapt to the new market environment.
Therefore, the automobile sales industry is undergoing a profound transformation, and the “good business” of the past is no longer prosperous. In order to gain a foothold in the new era, dealers must adjust their strategies. Only in this way can dealers find their own position in the new market environment and achieve long-term survival.
