The boss chooses to change his career, leading to a major withdrawal of 4S stores. Investigation shows that over 40% of brands | distributors | owners have resigned from certain stores

On June 30th, Pangda Auto Trade Group Co., Ltd., the "first stock of automobile dealers," officially delisted. From a giant with thousands of 4S stores in the past to its dismal delisting, Pangda's experience is regrettable. In fact, in recent years, car dealerships have had a difficult time, with declining sales and plummeting profits. There have been incidents of 4S dealerships closing, and many investors choosing to withdraw from the internet and "lie flat".

"Relying on manufacturer subsidies to barely survive in the first half of the year, it may improve in the second half, but survival is the most important thing." Speaking of the survival situation of car 4S stores this year, Liu Wei, the head of a luxury brand store, sighed to a reporter from Pengpai News that the era of "lying down to make money" for 4S stores has long come to an end.

The exhaustion of 4S stores is closely related to the overall trend of the automotive industry.

Liu Wei believes that on the one hand, China's automobile market has become a "strong buyer's market", coupled with increasingly transparent information and rational consumers, selling cars has long been a difficult task. On the other hand, under the influence of the new energy wave, the transformation of sales channels has accelerated, and the distribution model that supports 4S stores has been impacted by the direct sales model, exacerbating the survival challenges of 4S stores.

A store has a turnover rate of over 40%, and the boss chooses to switch careers

Wu Hong, who had been operating a joint venture 4S dealership for many years, chose to leave the automotive distribution industry in early 2023. Due to the declining performance of the brand it represents in the Chinese market in recent years, and the fact that the industry's profits are not as high as before, Wu Hong decided to give up joining other brands.

In Wu Hong's view, factors such as the pandemic from 2020 to 2022 have caused "internal damage" to 4S stores. "During these three years, gross profit has continued to decline, while sales expenses and customer acquisition costs have continued to rise. Last year, my store had more than 40% of its staff."

Wu Hong added that he is not an exception, as many investors who have made a fortune through 4S dealerships are withdrawing. "As far as I know, most 4S dealerships have not made any money, luxury brands have a slightly better life, and Volkswagen brands will not have much difference. It can be said that doing mid to low end dealerships is basically a large-scale loss."

Industry research has also confirmed this situation.

Recently, Liu Yingzi, President of the All China Federation of Industry and Commerce Automobile Dealers Association, revealed at the China Automobile Distribution Industry Conference that at the end of 2022, the association conducted a comprehensive survey on the business situation of dealers and found that more than half of them were in a loss situation, some even serious losses. In the first half of this year, although the business situation of dealers has improved, there has been no fundamental change, and most dealers are still in a relatively difficult situation.

On July 3rd, the latest survey on the inventory warning index of Chinese automobile dealers released by the China Automobile Distribution Association showed that in June 2023, the inventory warning index of Chinese automobile dealers was 54.0%, a year-on-year increase of 4.5 percentage points. The inventory warning index is still above the boom bust line, and the automobile distribution industry is in a recession zone. The China Association of Automobile Dealers pointed out that the automobile market experienced a mild recovery in June, but the operating conditions of dealers still fell short of expectations.

The price war in the car market forces 4S stores to "cut meat and feed customers"

Industry insiders generally believe that the hardships faced by car dealerships are directly related to upstream car companies.

Liu Wei stated that the competition in the automotive industry is fierce, and OEMs are increasingly unable to make money. Dealers, as downstream OEMs, will undoubtedly be under pressure. The price of new cars has plummeted significantly, and the gross profit margin of bare cars is extremely low. "If the lips and teeth are cold, OEMs cannot eat meat, and dealers should not want to drink soup."

"The setting of assessment indicators for 4S stores by some OEMs can be said to be stirring up internal conflicts," Wu Hong believes that in recent years, some OEMs have set unreasonable sales targets for 4S stores in order to shift performance pressure, and phenomena such as forced inventory suppression, kickbacks, and bundled procurement are actually common.

Under strict assessment, only 20% of dealers have achieved the quota allocated by the host factory this year. A recent survey by the China Automobile Distribution Association showed that 21.3% of dealers were able to complete their sales targets in the first half of the year, and 11.7% of dealers stated that their task completion rate was even less than 50%.

"Every year, there are thousands of 4S stores that withdraw from the internet. The prominent feature of 2021 and 2022 is the significant increase in the number of joint venture brands withdrawing from the internet, which has become mainstream. Previously, there were actually more domestic brands," said Wu Hong.

Luxury brands, due to their strong bargaining power, have seen their profitability rise instead of decline. This year, the automotive market has been sluggish, and dealer channels have received a "blood transfusion" from OEMs.

According to media reports, at the beginning of this year, BMW began providing subsidies to brand dealers. In early June, BMW also provided subsidies of 4 billion yuan to dealers. Mercedes Benz also distributed a subsidy of several hundred million yuan in the first quarter, and continued to distribute a subsidy of 2 billion yuan to Mercedes Benz dealers in June. Audi, on the other hand, provides a subsidy of 2% of the car price to dealers for every car sold.

In contrast, in recent years, the market share of joint venture brands has been gradually declining, and their market share and profit margins have been continuously declining. Especially, second tier brand manufacturers are struggling to survive and have no time to consider the survival of distributors.

Liu Wei frankly stated that in this year's price war, 4S stores, especially joint venture brand stores, have been clearly forced by manufacturers to "cut meat and feed customers". In the past, they sold cars at higher prices, but now they are selling cars at a loss. "Manufacturers blindly followed suit by lowering prices and suppressing inventory, resulting in many 4S stores selling cars at a loss. You have to complete the manufacturer's task to obtain year-end rebates, which is a big deal, otherwise there is not even a chance of" working for a year "."

New energy vehicles reshape channels, but 60% of new energy vehicle dealers do not make money

According to a report from the China Association of Automobile Dealers, there were 2362 4S stores that withdrew from the internet in 2020, nearly 1400 4S stores that withdrew from the internet in 2021, and 1757 in 2022. Thousands of dealers have withdrawn from the network, often seen as a sign of a decline in the 4S dealership model.

Interestingly, Wu Hong explained that in recent years, the total number of car dealerships in China has been continuously increasing. "There are those who do well, and there are those who do not. The industry always has inputs and outputs, and it's not just a matter of looking at a single number to draw conclusions," he said

Most of the exiting dealers are gasoline car dealers, while more new entrants are attracted by the new energy track.

Currently, the biggest trend in the automotive consumer market is undoubtedly the explosive growth of new energy vehicles. The production and sales of new energy vehicles have both doubled in 2021 and 2022. The reshaping of the industry by new energy vehicles has become an objective fact that all dealers cannot avoid.

The latest data released by the China Association of Automobile Manufacturers shows that the retail sales of new energy vehicles in the market in June were 665000 units, a year-on-year increase of 25.2% and a month on month increase of 14.7%. The retail penetration rate of new energy vehicles in China reached 35.1% in June, an increase of 7.8 percentage points from the same period last year's penetration rate of 27.3%.

The outbreak of new energy vehicles has accelerated the exit of joint venture brands and also changed the profit model of automobile sales channels.

The penetration rate of new energy vehicles can intuitively show the situation of joint venture brands. In June, the penetration rate of new energy vehicles among domestic brands was 58.8%, while the penetration rate of new energy vehicles among luxury cars was 30.9%, while the penetration rate of new energy vehicles among mainstream joint venture brands was only 3.7%.

Zhou Na used to be a salesperson at a mainstream joint venture brand 4S store, but switched to an independent new energy vehicle brand earlier this year. She told reporters that in the past two years, there have been many practitioners like her who have switched from traditional 4S stores to new energy stores and new force stores. "No matter what kind of store, professional employees are needed, and most of these people are still separated from old 4S stores."

Zhou Na introduced that in the sales sector, influenced by Tesla, most new energy vehicle brands currently have a unified national price, and sales are promoted both online and offline simultaneously. The main focus of the stores is to serve customers well, and there is no need to "fight with customers" due to various additional fees; In terms of after-sales service, the estimated maintenance cost of new energy vehicles is less than one-third of that of gasoline vehicles of the same level, and there is no value-added service project that 4S stores can "hands-on". Aftersales is no longer the main focus of profitability, and the traditional 4S store structure that integrates sales, spare parts, after-sales, and information feedback is no longer suitable for the sales rhythm of new energy vehicles.

However, she also frankly stated that although they all sell cars, their work mode is very different from the past, and the changes in assessment methods make it difficult for many people to adapt. "In the past, transactions could be facilitated through various negotiations, but now we can only rely on service. For example, when I gave the commission for this order to the customer and helped them buy a car, the manufacturer found out and punished the store with hundreds of thousands or more."

When a large number of practitioners were moving towards the new track, Wu Hong did not choose new energy vehicles. "Currently, 60% of new energy channel dealers are not profitable," Wu Hong said. "The competition in the automotive industry is intensifying, and sales channels are also undergoing a major reshuffle. The price system for both gasoline and new energy vehicles needs to be rebuilt, and the trial and error costs may be relatively high."