No fear of "lack of core" supply and demand reversal More than 50% of car dealers have made money

After auto sales returned to a positive growth track last year, auto dealers in the end market also handed over eye-catching "answers". On February 10, the China Automobile Dealers Association (hereinafter referred to as the "Dealers Association") released the "2021 National Automobile Dealers Survival Survey Report" (hereinafter referred to as the "Report"), showing that the profitability of dealers rose to 53.8% last year, and the operating conditions of dealers are gradually improving.

However, the domestic auto market has entered the new normal of "stock", and car dealers are also facing challenges under the influence of repeated epidemics and chip shortages. Lang Xuehong, deputy secretary-general of the Circulation Association, said that thanks to the lack of supply, dealers can improve the profitability of insured sales, but dealers are also facing pressures and challenges such as loss of personnel, insufficient resources caused by chip shortages, and decline in after-sales profits.

Loss-making dealers drop to 17.5%

Affected by the shortage of supply chain last year, the terminal market was once in a situation of insufficient supply and demand, but this did not affect the overall operation of offline dealers. The "Report" shows that despite the impact of chip shortages, 70% of dealers last year still completed more than 80% of the annual task target. The relevant person in charge of the circulation association revealed that the proportion of dealers who completed the annual sales target was 29.4%. Among them, the annual target of luxury/import brand dealers is better, and nearly 40% of the dealers have completed the annual sales target.

While the amount of tasks meets the standard, the profitability of dealers is also improved. The "Report" shows that last year, the profitability of dealers rose to 53.8%, and the loss surface fell to 17.5%. Among them, nearly 80% of luxury/import brand dealers have achieved profitability.

In contrast, the reporter noted that only 29.7% of dealers were profitable in 2019, and the loss of dealers reached 41%. Among them, only 35.8% of dealers of luxury/import brands achieved profitability; in 2020, 34.4% of profitable dealers accounted for 34.4%, and 33.8% of dealers were still in a state of loss.

However, with the improvement of profitability, the operating conditions of dealers in 2021 are much better than in the previous two years, and the overall satisfaction of dealers with manufacturers has also increased significantly. The Report shows that the overall satisfaction score of dealers last year was 82.7 points. In terms of brand type, luxury/imported brands scored the highest at 84.8 points, joint venture brands scored 83.6 points, and independent brands scored 78.7 points. A joint venture brand dealer said that last year's inventory level was not high, manufacturers are also adjusting and optimizing product production in a timely manner, coupled with changes in market supply and demand, the operating pressure has been significantly reduced.

Break free from the "price for volume" cycle

Profitability and dealer satisfaction are not unrelated to the stability of market prices and reasonable inventory levels. The "Report" shows that the proportion of dealers who did not have price inversion last year increased by 2.9% to 29.4%, and the proportion of dealers with price inversion of more than 20% accounted for less than 7%. "The performance of independent brands is relatively excellent, and half of the dealers have not experienced price inversion." Lang Xuehong said that in the dealer profit structure, the proportion of new car revenue is still the highest, more than 80%. While price inversions persist, it is significantly better than in 2020.

The reason for the improvement in price inversion is mainly due to the change in the relationship between supply and demand in the market. It is worth noting that after the shortage of chips in the automobile market last year, the decline in the output of the main engine factory led to insufficient terminal inventory, and dealers could only begin to reduce the discount to correspond to market changes. A person in charge of an independent brand dealer admitted that the main reason for the intensification of losses in 4S stores before was the blind pursuit of market share by the main engine factory, and the strict assessment system for dealers. However, at that time, the market demand was not high, and some dealers had a serious pressure situation, and the pressure could only be alleviated by exchanging price for volume, resulting in selling cars at a loss. However, after the epidemic, the market demand was released at the same time, the chip shortage was insufficient, and the supply and demand relationship reversed at this time, and the terminal price began to increase, so that the profitability improved.

In fact, the current market shortage problem has been alleviated to a certain extent, but some hot-selling models are still in tight supply, so the dealer's "price" is still not obvious. The reduction in price concessions also boosted the overall gross margin of new cars for dealers. The report shows that the gross profit margin of new vehicles in dealers has risen from 1.3% in 2020 to 1.5% in 2021. Yan Jinghui, a member of the expert committee of the Circulation Association, said that although various factors affect the consumer market, the "short supply" of automotive products caused by the shortage of chips has narrowed the terminal preferential margin, and the sales profit of new cars of dealers has been improved.

Used cars or become "new kinetic energy"

In addition to new car sales, the report shows that the proportion of used car business revenue in 4S stores last year also increased by 2.8%. Among them, the revenue of the luxury/import brand used car business accounted for 6.9% of the total revenue of dealers. A second-hand car dealer said that last year's chip shortage 4S shop dealers did not have a car source, and some luxury car brand dealers began to use the open fare to buy quasi-new cars to meet some consumer demand. The price of this part of the quasi-new car is lower than the price of the new car, which has attracted the attention of many consumers, which has increased the income of many luxury brand used car business segments.

In addition, the increase in the revenue of the used car business of 4S stores is also inseparable from the increase in the national second-hand car trading volume. According to the data, the transaction volume of the national second-hand car market last year was 17.5851 million units, an increase of 22.62% year-on-year, an increase of 17.84% compared with 2019. Luo Lei, deputy secretary-general of the Circulation Association, expects that the volume of used car transactions on the mainland will exceed 19 million this year, and will launch an impact on 20 million.

"China's auto market has entered the era of exchange, and the number of models in the used car market is increasing, gradually releasing the consumption potential of the used car market." Cui Dongshu, secretary general of the Passenger Car Market Information Joint Association, said that in the past two years, the state has adjusted the value-added tax on second-hand cars and promoted the "inter-provincial general office" of second-hand car transfer registration to simplify the process of buying cars in different places. Many policy supports have also promoted the development of this market, which also allows dealer stores with used car business to have more opportunities.

Although the results of the "Report" survey show that the overall operating level of dealers has been well improved, but the current domestic car market has entered the new normal of "stock", coupled with the repeated epidemic and the impact of chip shortage, auto dealers are also facing challenges. Lang Xuehong said: "Throughout 2021, multiple factors such as repeated local epidemics and chip shortages leading to untimely supply of vehicles have disrupted the pace of sales and increased the difficulty for dealers to cope with market changes. At the same time, the high cost of customer acquisition and the reduction of passenger flow are the core pain points of dealers. ”

Many dealers said that factors such as reduced supply and increased customer costs are affecting the conversion of potential customers. In addition, the high rate of after-sales customer churn and the reduction in the number of accident cars entering the store for maintenance are also challenges that have to be faced. Not only that, the rapid development of the new energy market, the rise of new power brands, and the substantial growth in sales of new energy passenger cars have caused a great impact on the fuel vehicle dealer group.

In this regard, the relevant person in charge of the circulation association said that many dealers in the survey mentioned that they hope that manufacturers can appropriately adjust business policies, increase the publicity of brands and products, and help dealers stabilize their operations. Especially in the face of many uncertainties in the automotive market in recent years, it is hoped that manufacturers can respond quickly and take favorable measures to help dealers improve profitability. (Liu Xiaomeng)