jumboplayingcards| The price war continues to haze, and the performance of car dealers declines sharply

Jing Guan Automobile essay | Wang Shuaiguo

At the beginning of this year, it happened in Dongguan, Guangdong.JumboplayingcardsThe "thunderstorm" incident of Guangdong Yongao, a well-known car dealer, has become a portrayal of the difficult living conditions of the current car dealers. Car dealers, as important participants in the field of automobile circulation, are undergoing the test of the pain of transformation from the automobile industry, and are also struggling to find new "living methods".

"in 2023, we closed six stores and lost 25 million yuan less." The head of a domestic car dealer told the Economic Observer. Closing stores and shrinking business lines have become an important means for car dealers to reduce losses.

At present, the life of domestic car dealers is generally not satisfactory. According to the "investigation report of Automobile Dealers investors" released by the China Automobile Circulation Association (hereinafter referred to as "the Circulation Association") on April 11, among the 27 dealer groups (including large, medium and small groups) surveyed, nearly 30% of the surveyed groups failed to make profits (losses or break even) in 2023, nearly half of the groups' profits declined, and only 24% of the groups achieved profit growth.

Recently, eight listed auto dealer groups, including Zhongsheng Group, Yongda Automobile, Guanghui Baoxin, Meidong Motor, Zhengtong Motor, Harmony Automobile, Xinfengtai Group and Badley Holdings, released their 2023 results. The performance reports of various groups also revealed the current situation of the dismal operation of car dealers, with "a small increase in revenue and a sharp decline in profits" as the main trend.

According to the performance reports of the above-mentioned automobile dealer groups, in 2023, the new energy vehicle business has become a new "sharp weapon" to improve the profits of enterprises. In addition, the after-sale market, second-hand car sales, finance and other derivative businesses have gradually become the revenue and profit growth points of car dealers. However, due to the small size of this new business, it is not possible to fully make up for the losses incurred by car dealers in the main business of new car sales.

Profits generally plummeted

Of the eight listed car dealer groups, six saw a year-on-year decline in profits in 2023. Among them, Zhongsheng Group, as the "big brother" of the industry, achieved a net profit of 49% in 2023.Jumboplayingcards91 billion yuan, down 24% from the same period last yearJumboplayingcards.70%, which is already the smallest decline among the six companies.JumboplayingcardsIn 2023, Yongda Automobile, Meidong Automobile, Xinfengtai Group and Bidley Holdings achieved net profits of 586 million yuan, 156 million yuan, 12 million yuan and 84 million yuan respectively, with a year-on-year drop of 60%. Zhengtong's loss expanded to 820 million yuan in 2023, a drop of 176.30%.

This is another collective "big decline" of profits in the automobile distribution industry after 2022. When talking about the reasons for the decline in profits, these dealer groups unanimously pointed the "spearhead" at the price war in the new car market in 2023.

East American Motor said in its financial report that domestic consumption was weaker than expected in 2023 due to macro factors. Due to the lack of terminal demand and the failure of the automobile market to respond in time, there is a certain imbalance between supply and demand in the industry. in order to improve the cash flow and inventory backlog, most dealers have adopted the way of price for quantity to promote sales. This measure has seriously compressed the profit margins of car dealers, coupled with the failure of the supply side to make timely adjustments, car dealers are also under great operational and financial pressure.

The pressure from the market has led to a decline in the gross profit margin and gross profit margin of new car sales in many car dealers. In 2023, the gross profit of Zhongsheng Group's new car sales business was 1.058 billion yuan, down 2.882 billion yuan or 73.1% from the same period last year; Yongda Automobile's new car sales gross profit was 176 million yuan, down 1.263 billion yuan or 87.8%, and the new car distribution gross profit margin was 0.31%, down 2.16% from the same period last year. Meidong Automobile New passenger car sales gross profit margin was-0.6%, down 4.0%.

In addition, the poor new car sales of automobile dealers has something to do with the "rebate model" of the automobile main engine factory for dealers. "among the new car profits of dealers, manufacturers account for an increasing proportion of rebates. Although there are rebates, rebates have to be paid by themselves, with tens of millions of advances for the whole year, with an advance period of at least three months." The person in charge of the above-mentioned dealers said that in order to get the manufacturer's rebate, the dealers are basically selling cars at a loss.

Selling new energy cars makes more money.

There are two factors that determine the profit of dealers last year. First, there are more luxury brands, and second, there are more new energy brands. If none of them is occupied, it will be very difficult to make a profit. " Lang Xuehong, deputy secretary general of the Circulation Association, told the Economic Observer.

Most of the eight listed car dealer groups have luxury car brand sales, so six still keep their profits above the profit and loss line in the face of industry pressure in 2023. In addition, the new energy vehicle business has also become the key for dealers to make profits, and Yongda Automobile is one of them, which made a profit of 586 million yuan in 2023.

According to Yongda's performance report, sales of new energy vehicles of all Yongda brands reached 32900 in 2023, an increase of 33.8% over the same period last year, accounting for 17.0% of total sales. In terms of after-sales, the after-sales business of Yongda independent new energy brand has improved rapidly, with annual maintenance revenue of 159 million yuan, an increase of 255.3% over the same period last year, and maintenance gross profit margin of 41.7%, the same as that of fuel vehicles. This data breaks the stereotype of low profit in the aftermarket of new energy vehicles.

Yongda said that due to the intelligent hardware integration and maintenance technology threshold of new energy vehicles are significantly higher than traditional fuel vehicles, the number of customers in the after-sales management cycle is much higher than the number of new car sales, and the customer retention rate is also higher than that of fuel vehicles.

"We began to build a new energy network in 2022, when the financial situation was very stressful, but with the increase in sales of new energy vehicles and the closure of a number of loss-making traditional brand stores in 2023, profits improved a lot." Some dealer investors said in the research report of the Circulation Association.

In the view of many car dealer investors, in order to open a new store in the current market environment, it is necessary to refer to several trends in the industry: the first is to open a new energy store; the second is to open a county fuel vehicle comprehensive store (selling multiple brand products); the third is to improve the regional concentration of joint venture brands.

There are also enterprises that are not optimistic about the new energy market. Zhongsheng Group believes that although the global automotive industry will be electrified in the long run, there are obvious bottlenecks in the current BEV (pure electric vehicle) technology and infrastructure, resulting in deep anxiety among users about mileage, safety issues and the overall cost of using cars, as well as the high production costs of the mainframe plant and unsustainable profitability. As a result, Zhongsheng Group has not stepped up its layout in the new energy market.

Open up new business

Among the above eight listed car dealer groups, Guanghui Baoxin and Harmony Automobile groups still achieved year-on-year increase in net profit in 2023. Among them, Guanghui Baoxin achieved a net profit of 114 million yuan in 2023, an increase of 116.30% over the same period last year, from loss to profit; Harmony Automobile realized a net profit of-242 million yuan, an increase of 85.10% over the same period last year, and the loss narrowed.

It is worth mentioning that of all the car dealer groups listed in Hong Kong, Guanghui Baoxin's gross profit margin also increased the most significantly, with its comprehensive gross margin rising 179% in 2023 compared with the same period in 2022, and rising from 1.5% in 2022 to 4.1% in 2023.

Zhang Xudong, partner of Roland Berger Greater China, said: "the improvement of the quality of new car sales and the expansion of auto finance business are the main factors for Guanghui Baoxin to improve its profitability." Specifically, in 2023, Guanghui Baoxin formed a group store advantage by optimizing the distribution quality of the distribution outlets of the investment brand and strengthening the business coordination and resource integration among the authorized stores of the same brand. as a result, the group's new car gross profit margin increased from-3.1% to-0.4%. In addition, Guanghui Baoxin has achieved auto financial revenue of more than 92% by expanding diversified auto financial cooperation models and innovating financial products and services with partners.

The situation of Harmony Automobile is different. The main reason for the significant improvement in net profit in 2023 is that it is less affected by the investment loss in 2022. In 2022, Harmony Automobile made a full provision of 1.217 billion of the profit and loss of FMC (Baiteng Automobile) equity investment in 2022, resulting in a substantial loss in that year. In 2023, the actual operating situation of Harmony Automobile has not improved. The gross profit of its main business operation is about 964 million yuan, down 10.7% from the same period last year. The gross profit margin of the main business comprehensive operation dropped from 6.6% in 2022 to 5.8%.

From the perspective of the automobile distribution industry as a whole, new car sales, which has been the core business of automobile distribution for a long time, suffered a huge impact in 2023 due to price war and other reasons, which is the main background of the decline in profitability of car dealers. In order to improve their living conditions, car dealer groups have to look for profit growth space from the aftermarket, second-hand car market and financial derivatives business.

Zhang Xudong said: "the business adjustment trends of domestic automobile dealer groups in 2023 mainly include: optimizing the brand layout of fuel car racing tracks, accelerating the layout of new energy racing tracks, and business innovation in the after-market area. Improve the operation quality of after-sales business, and strengthen the customer lifecycle operation capacity."

Second-hand cars are a hot field. Take Zhongsheng Group as an example. In 2023, Zhongsheng Group's used car sales revenue was 13.985 billion yuan, an increase of 42.3 percent over the same period last year; boutique and after-sales income was 25.09 billion yuan, up 2.0 percent over the same period last year, the output value of after-sales service increased by 16 percent, and after-sales service gross profit increased by 24 percent.

According to the performance report of Zhongsheng Group, Zhongsheng Group has adjusted its used car business strategy since the beginning of 2023, and the monthly trading volume has continued to grow from 7,000 units in January to 20,000 units in December. The total trading volume of used cars rose 17 per cent year-on-year to about 164000 vehicles, and the corresponding comprehensive profit rose 55 per cent year-on-year to about 1.2 billion yuan, accounting for 6.9 per cent of the year's comprehensive profit, a record high.

However, according to the survey report of the Circulation Association on the investors of car dealers, the used car business of car dealers in 2023 is still under great pressure. First of all, the volatility of new car prices has depressed the price of used cars, slowing down the pace of dealers shifting used cars from wholesale sales to retail; second, some of the more successful groups in the used car retail business face car supply bottlenecks in their 4S stores, and there is an upper limit on the scale of the business.

On April 10, the Circulation Association released the results of the survey of "Automobile Dealer inventory" in March 2024: the comprehensive inventory coefficient of automobile dealers in March was 1.56, down 10.3% from the previous month and 12.4% from the same period last year, and the inventory level was above the warning line. Dealer inventory pressure decreased. The signal suggests that car dealers may face a more favourable situation in 2024 than ever before.

Zhang Xudong believes that for automobile dealers, there are also many growth points worth exploring in terms of enterprise management and organizational efficiency, including deepening the digital capacity of stores, building regional capacity centers, expanding the ecological business operated by local users, improving the ability of network operation and management, trying overseas business, and so on.

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