Three Porsche dealers in China protested and demanded subsidies for selling cars at a loss

Interface News

2024-05-27 11:14Posted on the official account of Beijing Jiemian News

Interface News Reporter | Zhou Shuqi

Interface News Editor | Chen Xiaotong

After the sharp drop in sales, the conflict between Porsche China and dealers was put on the table. Jiemian News recently learned from people familiar with the matter that at the Porsche China Dealer Conference at the beginning of this year, three Porsche dealers in China, Sunfonda, Battery and Meidong Group, had objections to this year's sales tasks, and they have not been properly resolved.

The dealer's investors signed the agreement on the condition that Porsche China compensate for the loss on the sale of new vehicles. Among them, Meidong Group requires a subsidy of 1 point of gross profit for new cars; Dealers such as the Betters Group relied on the Automobile Dealers Association to send a letter requesting a subsidy of 4 points of gross profit.

A person familiar with the business of auto dealers explained to Jiemian News that last year, due to the weakening of terminal demand and the impact of the market price war, dealers were forced to sell cars at a loss in order to achieve the sales target at the beginning of the year. In order to make up for the losses and alleviate the cash flow pressure, the two dealers are asking automakers to provide direct subsidies to bring the gross profit margin of their new car sales business back to 1% or 4%.

Jiemian News checked the 2023 financial reports of the above two dealer groups and found that in 2023, the gross profit margin of the new car sales business of Meidong Group fell by 4 percentage points and turned negative, to -0.6%; Battery Truck's gross profit margin decreased from 4.1% in 2022 to 0.2% in FY 2023.

However, since the three protesting companies are not core Porsche dealers in China, their demands have not been responded to in a timely manner by Porsche China. Meidong Group has 16 Porsche dealer stores across the country, most of which are concentrated in second-tier cities and below; Sunfonda and Betterli are both about 5, and they are also not deeply involved in first-tier cities.

What's more, Sun Shaojun, the founder of Car Fans, who has been paying attention to the terminal market all year round, posted that Porsche China chose to press inventory on dealers in order to complete the sales task in order to complete the sales task in the context of the sharp drop in sales and the plunge in car prices, and the conflict between the two sides has completely intensified. The dealer used the stop of entering the car as a weapon to publicly ask the German headquarters to change the executive to give subsidies.

A person close to Porsche China told Jiemian News that the annual sales target for Porsche China has not been determined due to the failure to reach an agreement on the sales target and subsidy agreement communicated with dealers. The three small dealer groups that protested in groups will still buy cars in small quantities, but are only willing to accept models that sell well.

According to market sources, in May, Porsche China successively communicated with various dealer groups one by one. Porsche China will provide 1,000 Paramelas with pick-up storage support to help optimize dealer inventory and cash flow. In order to balance supply and demand, Porsche China will consider the possibility of adjusting its sales plan for 2024.

Jiemian News has learned that Porsche's German headquarters has sent an investigation team to China to understand the specific situation, and it is expected to determine the final sales tasks and solutions in August this year.

The above-mentioned people familiar with the matter believe that the subsidy demands of the three dealer groups may not be met. The most important foundation of Porsche China is the large dealer groups such as PAIG and Jebsen, and these dealer investors are currently silent and stand on the same front as Porsche China.

PAIG is a wholly-owned subsidiary of Porsche Holding Salzburg, a subsidiary of the Volkswagen Group, and has 18 Porsche stores in China, most of which are located in first-tier cities. Jebsen Group introduced Porsche to the mainland in 2001 and now has 21 Porsche sales and after-sales service outlets in eight first-tier cities.

Zhu Kai, general manager of Jielan Road, pointed out in an interview with Jiemian News that Porsche is an automobile company with brand effect. Once the relationship between the dealer with the weak voice is deadlocked, it is possible that part of the pre-sales and after-sales business authorization will be withdrawn. For example, the East Coast Group, a dealer group that sells luxury brands, generated more than 40 percent of its new car sales last year from Porsche.

This is not the first time that a disagreement between Porsche and the dealer has occurred. At the beginning of 2015, the Porsche dealers, who were in a loss-making quagmire at that time, sought subsidies from the manufacturer but were not satisfied, and the two sides failed to reach an agreement after several communications. At the same time, BMW dealers, who protested at the same time, received a total of 5.1 billion yuan in subsidies from the BMW Group after refusing to pick up their cars.

Zhu Kai told Jiemian News that under the downward pressure of sales, even the "gift package" subsidized by manufacturers may not be able to appease the emotions of dealers. Now, some luxury car brands have relaxed the assessment of the financial penetration rate of dealer manufacturers' programs, allowing dealers to have greater autonomy in choosing the financial institutions they want to work with. These financial institutions tend to offer higher rebate points, which increases the dealer's income to a certain extent.

Luxury car brands are supposed to be more of a long-term investment than mass-market car brands, countering the effects of cycles. But that doesn't mean they're immune to the volatility caused by a prolonged market downturn. Porsche, known as one of the most profitable companies in the automotive industry, is no longer able to sell cars at the profit margins of luxury goods.

In 2023, Porsche's sales in China will be sluggish, with only 79,300 units delivered for the whole year, making it the only single market in the world where Porsche has declined. In the first quarter of this year, Porsche's deliveries in China continued to fall by 24 percent to 16,300 vehicles, while operating profit fell by three percent year-on-year to 1.28 billion euros.

Although Porsche's top management has repeatedly stated that it has no intention of getting involved in the price war in the Chinese market, the Taycan and the new Paramela, which are nearing a mid-term facelift, have achieved discounts of 20 percent and 13 percent, respectively. In addition, after this year's product update, the overall price of Porsche has risen, and the threshold for car purchase has been raised. Considering the pressure of sales tasks, dealers are even less motivated to recover the discount rate of new cars.

Zhu Kai pointed out to Jiemian News that Porsche's vigorous price reduction promotion and inventory clearance directly affect the value retention rate of second-hand cars. As a "luxury" in the automobile consumer market, the decline in Porsche's value retention rate will increase the wait-and-see sentiment of consumers holding currency to buy.

According to a report released by the China Automobile Dealers Association, Porsche is still the most valuable luxury car brand, but its value retention rate has dropped from 83.1% in one year to 76.7% year-on-year. According to the 2024 Consumer Insights Report released by McKinsey, about half of consumers are no longer willing to pay a premium for foreign brands.

Under the dual pressure of sales pressure and declining profits, some Porsche dealers have chosen to withdraw from the network. In March this year, the 100th sales outlet of Porsche China, which is part of the Jebsen Group, closed its store in Guangzhou Tianhuan Plaza.

In fact, this year is the year in which Porsche has launched the most new products, and the company's executives expect the Chinese market to pick up in the second half of the year. At the Beijing Motor Show, Porsche unveiled the new Taycan 4 for China, and the all-new all-electric MACAN with a starting price of 728,000 yuan, which is the electric model with the lowest threshold for buying a car for Porsche.

However, according to Jiemian News, Porsche China did not pin the power of sales growth on the pure electric MACAN. The annual quota for this model in the Chinese market is only 1,000 units.

China's own brands are attacking the high-end market through new energy vehicles. According to the data of the Passenger Association, the retail sales of luxury cars in April this year were 200,000 units, a year-on-year decrease of 12%, while the new energy luxury models of more than 400,000 yuan increased by 106.1% year-on-year. The sales volume of AITO M9 reached 13,400 units last month, ranking first among luxury models with more than 500,000 yuan, and the cumulative number of large orders has exceeded 70,000 units.