Dealer inventory warning, why no one wants to buy a car?

Probably no one expected that the impact of the 2022 epidemic on the automotive industry may be even greater than in 2020.

A few days ago, the China Automobile Dealers Association released the latest issue of the "China Auto Dealers Inventory Warning Index Survey". Survey data show that in April 2022, the inventory warning index of Chinese automobile dealers was 66.4%, up 10 percentage points year-on-year and 2.8 percentage points from the previous month, and the inventory warning index was above the boom-bust line.

Source: China Automobile Dealers Association

Since the inventory warning index fell to the lowest 50.9% in September 2021, the inventory warning index has risen for 6 consecutive months, and only in February this year, because of the Spring Festival, the index has declined slightly.

At the same time, it is also the highest inventory peak since March 2020. When the outbreak began in early 2020, the country began to seal the epidemic, and the inventory warning index reached 81.2% in February of that year, but then fell to 59.3% in March.

On the surface, it is the epidemic in Shanghai, Jilin and other places that has hit the automobile market hard. According to data from the China Automobile Dealers Association, in the sample of 94 cities surveyed, dealers in 34 cities have closed stores due to the provisions of epidemic prevention and control policies. Among them, more than 60% of dealers whose store closure time is more than one week.

Distributors in the Shanghai area are particularly serious. Shanghai is a major automobile sales center, and some data show that in 2021, Shanghai's cumulative new car sales will reach 736,700 units, ranking first in the country. This round of Shanghai epidemic has made dealers in Shanghai almost completely silent, and the inventory of dealers is bound to be high.

It can also be seen from the regional distribution of the inventory warning index that the inventory warning index in the north and east districts where Jilin and Shanghai are located is the highest, which is close to 70%.

Source: China Automobile Dealers Association

The epidemic has indeed led to objective operational difficulties for some dealers, but this is not all. After all, since september last year, the inventory of dealers has begun to rise. However, this problem is covered up by the gratifying sales results of various car companies at the end of the year.

The epidemic is only a catalyst and tipping point, and the excessive release of automobile production capacity, the contradiction of oversupply in the market, and the rigidity of the dealer's business model and insufficient service capacity are the main reasons for the difficulties of dealers. This is a process from quantitative change to qualitative change.

According to the data released by the China Automobile Dealers Association, in 2020, when the epidemic is serious, the number of passenger car dealer networks in the country is 28,000, but the cumulative number of withdrawals in the whole year has reached 3,920, and about 11 4S stores have closed and withdrawn every day. The cumulative number of new companies is only 2181. Overall, the overall number of car dealerships shrank in 2020. Among them, the withdrawal rate of independent brands is relatively high, and the market share of mainland independent brands in 2020 has fallen below the 40% red line for several consecutive months.

By 2021, the annual sales and revenue of independent brands have increased significantly, and the data shows that the profitability of dealers has risen to 53.8%, and the loss has dropped to 17.5%. However, nearly 80% of the dealers of luxury/imported brands have achieved profitability behind this, and the proportion of profitable dealers of joint venture brands and independent brands is still below 50%.

According to the china automobile dealers association's recent channel network statistical report on 98 passenger car brands, the number of passenger car 4S sales and service networks in the country at the end of 2021 was 29,000, an increase of 3.9% year-on-year. Among them, a total of 2468 new 4S dealer networks have been added, and the explosive growth of new energy and the rise of independent brands in 2021 have made the channel network have a certain growth. The number of 4S dealer stores that have withdrawn from the network for various reasons is still 1379. However, this time, the high rate of withdrawal from the network has become a joint venture brand, and the withdrawal rate of the joint venture brand is as high as 57%.

Source: China Automobile Dealers Association

So the market situation so far this year, if there is no fundamental reversal in the second half of the year, dealers may face a similar situation to 2020. And this time the withdrawal network will no longer be concentrated in a certain type of brand, perhaps it will be independent and joint venture mud and sand.

Overextended capacity and weak terminal consumption leading to oversupply in the market are another straw that crushes dealers.

On the one hand, whether it is an independent or joint venture brand, the annual sales target is improving; on the other hand, the rapid growth of new energy has allowed various car-making forces to set sales targets of hundreds of thousands of yuan per year. On the consumer side, the willingness of car buyers to consume is gradually cooling.

In 2020, most people are optimistic about the long-term and repetitive nature of the epidemic. So when the first wave of the epidemic was controlled, people's enthusiasm for cars quickly rebounded, and the inventory index of dealers was able to quickly drop from 81.2% to 59.3%.

But after two years, many people have a new view of the situation. When you see the price of various groups to buy vegetables after the lockdown of Shanghai, most people may understand this truth: they have grain in their hands and do not panic in their hearts.

The epidemic in the past two years has indeed made people have less spare money in their hands, even if there is spare money in their hands, in the face of non-rigid consumer goods such as automobiles and unexpected epidemics, many people will choose to put money in their wallets in case of emergency.

This is also why the automobile consumption structure in the past two years has begun to develop polarized, some rich people continue to buy luxury cars, and another part of the economic pressure to buy cars began to reduce their desire to consume. Therefore, luxury car dealers continue to make money, the sales of more affordable independent brands take off, and the demand for larger terminal consumers is significantly reduced.

Write at the end:

After the automotive industry enters the new energy era, the value chain of the automotive terminal market is already in a process of reconstruction. Even without the outbreak of the epidemic in Shanghai and other places, the decline in automobile consumer demand, and the increasing difficulty of traditional dealers to make money will be an indisputable fact. It's just that the pandemic has exacerbated this shift and made elimination more brutal. (Text/UVIS Auto Old Cannon)

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