The evolution of the auto sales model in China
SHANGHAI, October 1, 2021 / PRNewswire / – Cango Inc. (NYSE: CANG) (“Cango” or the “Company”) publishes a bi-monthly industry analysis publication titled “CANGO Auto View” to educate readers, drivers and passengers on trends emerging from the automotive market.
Below is an article from the 5th edition of the Society for September 2021.
Drivers of the ongoing transformation of the automotive sales model
Since the invention of the automobile, its sales model has remained largely static. Automakers produce cars and wholesale them to dealers, who are then responsible for most of the retail sales to end consumers as well as after-sales service.
The first 4S store in China is now over 20 years old. The majority of today’s Chinese car consumers were born in the 1990s rather than the 1960s. This new generation of car consumers has grown up in the Internet age and has experienced rapid technological advancements, resulting in consumption habits very different from those of previous generations.
People born after the 1990s have never experienced a lack of information. They dine in Haidilao, enjoy community group shopping, and know what customer-centric service is no matter where they live. In the new era of automotive consumption, this group has identified issues with the obsolete car buying process and the so-called service experience, creating both opportunities and challenges for car manufacturers and dealers alike.
Problems with the 4S model
Individual 4S dealerships are struggling relative to auto dealer groups due to increased competition, new emerging sales models and sluggish overall growth. The profit gap between individual 4S stores and the stores of the top 10 auto dealer groups is estimated to be at least three to five million yuan. Opening an individual 4S store requires an initial investment of 20 to 30 million yuan, and it’s an illiquid investment that can be hard to sell. Operating a 4S store also involves management challenges. According to a senior 4S store manager, if a newly opened 4S store wants to implement an internal risk control management system, it needs to formulate a broad set of management standards – up to 6,000 KPIs – which is a business. monumental for an independent. shop.
Choosing a brand of car to sell is also a crucial decision when opening a 4S store. With the right brand, a 4S store can ideally deliver an annual return of over 15%, allowing the owner to recoup their initial investment in just five to eight years. However, such a return is elusive and depends on the detailed channel management strategies formulated by traditional automotive brands over the years, such as designing a sales target to match the brand’s market share in the market. geographic area of the store and adjusting sales targets based on store sales history.
Given these risks and challenges, successfully operating a 4S store is clearly not an easy task. The plight of individual dealers has grown in recent years as they struggle to compete for capital, management resources and talent retention while navigating the new era of auto consumption and the demands of young consumers.
Direct sales and new energy vehicles (NEV)
It has become evident that young car consumers are open to the new direct sales model. Younger consumers are also more environmentally conscious than previous generations, which is driving demand for NEV. Between January and July 2021, 1.504 million new energy vehicles were produced in China, and 1.478 million products sold, both representing 200% year-over-year growth. This rapidly growing market, combined with the demand from young consumers for a new sales model, is driving a major change in from China automotive sales market. Some new automakers, like Tesla, have adopted a direct sales model to improve the user experience. With a direct sales model, customers order their cars online directly from the automaker, at a unified selling price.
Similar changes are happening all over the world. Honda Australia has announced that it will cease its current sales model 4S from July 1, 2021. Existing authorized Honda Australia car dealers will no longer sell new models; instead, customers should order cars from Honda’s official website at a unified retail price. Automakers accustomed to the 4S sales model must now adapt to online ordering and offline pickup, which unifies new car retail prices and limits traditional 4S store dealers’ bargaining power over sales new cars.
Despite the obvious trend towards direct sales, many new car brands did not intend to enter the market with this model in the first place. According to some industry reports, most of the new car makers cannot allow the sales channel to make a profit due to their brand awareness and limited products, which means that even though the brands adopt the model of dealership, it is difficult to persuade dealers to participate. Although national sales of NEV are growing rapidly, there are simply not enough brands in every region, and many traditional 4S investors are reluctant to invest heavily in a single brand of NEV due to the huge risk associated with the limited sales scale.
The ever-growing NEV market, changing consumer demand and the industry’s own development needs are driving changes in the traditional model of car sales across the automotive industry. The shift to this sales model is inevitable, but the market has yet to determine what shape it will take in the future.
About Cango inc.
Cango Inc. (NYSE: CANG) is a leading automotive transaction service platform in China connecting dealers, financial institutions, car buyers and other industry participants. Founded in 2010 by a group of pioneers in from China the automotive finance industry, the Company is headquartered in Shanghai and engages car buyers through a nationwide dealer network. The Company’s services mainly consist of the facilitation of automobile financing, commercial car transactions and the facilitation of after-sales services. Using its competitive advantages in technology, data insight and cloud-based infrastructure, Cango is able to connect its platform participants while providing them with a premium user experience. Cango’s platform model places it in a unique position to add value to its platform participants and business partners as automotive and mobility markets in China continue to grow and evolve. For more information, please visit: www.cangoonline.com.
Phone. : +86 21 3183 5088 ext. 5581
E-mail: [email protected]
SOURCE Cango Inc.