Under the impact of price wars, car dealers are facing a business crisis, with the loss surface further expanding.

On August 21, the China Automobile Dealers Association released a survey report on the living conditions of national car dealers in the first half of 2024, showing that the sale of new cars suffered severe losses, dealers operated at a deficit, business risks intensified, and profit margins narrowed. In the first half of 2024, the proportion of dealers who suffered losses reached 50.8%, and the proportion of those who made profits was 35.4%, with the loss surface significantly expanding compared to the previous year (+7.3%).

"The end sales price is far lower than the wholesale price, and the price inversion is severe," said Lang Xuehong, the deputy secretary-general of the China Automobile Dealers Association, indicating that one out of every two dealers lost money in the first half of the year. Especially since the second quarter of this year, the price war has intensified, with manufacturers and dealers deeply mired in the price quagmire, and profits being endlessly consumed by the price war.

In the first half of 2024, the car market continued to grow, and new energy vehicles maintained rapid growth, with the penetration rate continuously increasing. Especially the "trade-in" policy has further stimulated market activity and boosted consumer confidence. However, under the background of frequent price adjustments, the subsidy amount was diluted by the price war, and the release of policy effects was relatively slow. Consumer wait-and-see attitudes intensified, and new car sales showed a continuous monthly year-on-year decline. Faced with fierce market competition and frequent price wars, brand manufacturers and dealers used price promotion to compete for the market to achieve sales targets. Especially since the second quarter, demand has fallen back. In order to achieve sales targets, the car market has seen a rare high frequency and large-scale price adjustments.

Advertisement

"Since the second quarter, under the severe price inversion, some original equipment manufacturers have prepaid rebates when dealers pick up cars, and have advanced the rebate subsidies without the assessment of sales tasks, which has to some extent alleviated the financial pressure and loss situation. In addition, some delayed rebates have also been included in this year's business performance, which has a certain beautifying effect on the dealers' business performance," Lang Xuehong said, if there were no such prepaid rebates, the actual business situation of dealers would be worse.

The survey shows that in the dealer profit structure, the loss of new car sales is severe, the gross profit contribution of new cars is negative, and the loss continues to expand. In addition, the average gross profit of a single store has been significantly reduced compared to 2023, especially in the new car business, with an average loss of 1.78 million yuan per store. Even for profitable dealers, the profit per store has also declined significantly year-on-year.

In this survey, many investors or operational heads of some dealer groups said that the current market has a lot of uncertainty: production and sales imbalance leads to vicious competition, manufacturers' unrealistic goals lead to a continuous deterioration of the dealer inventory environment, and frequent price reductions and price inversions bring a vicious cycle.

The survey shows that only 28.8% of dealers who completed the semi-annual sales target at the expense of sacrificing profits through price competition, and the proportion of dealers with a target completion rate of less than 70% reached 33.3%.

Looking at different brands, luxury/import brand dealers have a better target completion situation, with more than 40% of dealers completing the annual sales target, while the target completion rate of joint venture brands is relatively low, with only 20.8% of dealers completing the annual sales target, and the proportion for independent brands is 23.1%.

Since the beginning of this year, joint venture brands have faced greater market challenges. Compared with luxury and independent brands, the decline in sales of joint venture brands is the largest, with most joint venture brands experiencing a significant decline in sales in the first half of the year, and some brands' sales have even halved. In the second half of the year, the sales of joint venture brands have not shown a rebound. The Passenger Car Association data shows that in July, luxury car retail sales were 220,000 units, a year-on-year decrease of 11%, and a month-on-month decrease of 14%; independent brand retail sales were 1.06 million units, a year-on-year increase of 13%, and a month-on-month increase of 3%; while the mainstream joint venture brand retail sales in July were 440,000 units, a year-on-year decrease of 25%, and a month-on-month decrease of 8%.Additionally, in the first half of this year, the overall satisfaction of dealers with manufacturers has significantly decreased, with a score of 69.7 points, compared to 82.7 points, 74.4 points, and 71.7 points in the years 2021, 2022, and 2023, respectively. The decline in satisfaction is primarily manifested in the severe inversion of new car prices, market price chaos, lack of continuity in manufacturer policies, and occasional incidents of forced sales and inventory pressure, which have increased the operational pressure on dealers, leading to a significant number of dealers suffering losses or being on the brink of loss.

The China Automobile Dealers Association, through its investigations, has found that the elimination round for original equipment manufacturers (OEMs) has already begun, and industry consolidation is intensifying. Backward production capacities upstream will be phased out, and some brands will exit the market. This requires dealers to make decisive and swift decisions regarding the brands they currently operate, especially when facing continuous losses, without any hesitation. At the same time, they must be extremely cautious when choosing new brands. While consolidating their existing advantages, they should make gradual adjustments. It is especially important to maintain and serve existing customers well to enhance customer loyalty. They should increase their focus on the used car business, change traditional marketing methods, strengthen online capabilities, and seek new profit growth points.

Lang Xuehong stated that with the prevalence of new energy vehicles, the market demand for fuel-powered cars has contracted sharply. The competitiveness of a large number of traditional fuel vehicles and some oil-to-electric conversion products has weakened rapidly. Manufacturers have set excessively high sales targets, with complex and variable rebate policies, and the support provided to dealers is insufficient, leading to dealers leaving the network and changing brands more frequently.