For 7 years, China has been leading the production and sales of automobiles. The scale of the auto aftermarket has also been rapidly growing. As China’s auto industry develops, the number and quality of Chinese auto dealers is also continuously increasing; the quality and variety of services provided for customers is changing for the better. However, in the recent years, the growth of auto dealers is slowing down, inventory is increasing, and profit is declining, OEMs and dealer relationships are also becoming tense. All of these phenomena are bringing new challenges. So, how will the auto dealers face these new challenges and opportunities?
On June 7th, 2017, the eighth Global Automotive Forum convened in Chongqing. What are some of the major developments, challenges and opportunities in the auto dealership sector? How can OEM-Dealer level relations evolve and improve? How will the auto dealer groups adjust its expansion strategy, cope with the maturing market, and deal with the fact that profits are declining? Can auto dealers use the help of auto-financing to find new insights for improvement? What can Chinese auto dealers learn from their foreign counterparts? In the light of these questions, Executive Vice President of Dongfeng Renault Automotive Corporation, China, Weng YunZhong, Deloitte Asia Pacific Automotive Risk Advisory Leader, Winhon Chow, and Founding Partner of Districom Group, Peter Hage gave their opinions on the matter.
Weng YunZhong: The Core Demand of Customers has not Changed; Those Who Attract Customers Wins the Market.
Looking at China in this new economic environment, every industry is facing reform and innovation, transformation and improvement. The auto industry, similarly, is constantly emerging with new concepts, new models and new operations. In April of this year, the country announced new management methods of auto dealerships, which has deeply affected the market’s future. Without a doubt, this will also call for innovation and bring challenges for the OEMs. Looking into the future, this might in fact drive the improvement and upgrading of auto services and auto dealerships.
The auto dealers are improving the environment in which consumers purchase their products: transparency, trust, and intimacy are DRAC’s management values. Therefore, personally, I hold positive expectations for the auto dealers and the auto aftermarket built through the franchise of exclusive brands. I believe that in the near future, 4S shops will still continue to dominate the auto sales market, because customers’ demands for automobiles and aftermarket services have not changed. High quality service will win the customers in whichever business model. Automobile dealers are improving their autonomy on management and reinforcing of core competence. Under the assumption that the core demand of the market is unchanging, facing the new opportunities brought by new methods, OEMs and suppliers need to reach an agreement, have similar goals, and use new ways of thinking to provide high quality services and provide a better experience for their customers. Only in doing so will they achieve mutual benefits and help the businesses to achieve sustained development.
Providing customers with quality experience and excellent services is an unchanging principle. I believe that seizing the opportunities and doing our job well will give a bright future for the OEMs and dealers alike. Both manufactures and dealers working together will also give customers a brighter future, which will achieve mutual benefit!
Winhon Chow: Brand new consumption experience will be disruptive to our consumption preferences.
Consumers are key to the dealership industry. As the core server of the entire transportation circle, Dealers need to build up new abilities and business models. The current consumption experience is not limited to in-store. Our consumption preferences will be changed by new consumption experiences. If we take a look at the 2016 Chinese Dealership Ranking, most of them have already engaged in e-commerce, and 30% of the dealers have accomplished the structure of Internet plus auto sharing.
What kind of cooperation models are the dealers taking? Some are with self-development. Some are in cooperation with other parties. The development models are largely dependent on their strategies, and at the same time, it must be known if they can cut down on some unnecessary costs. The future of dealers won’t be limited to the form of 4S shops—5S, 6S, or even 3S shops are possible. Some of the businesses could be done together with partners, for instance, there could be experience store, service store and quick repair store which are three different stores focusing on different businesses. However, they could be built within a specific radius and readily accessible, which could be a new model that is worth trying in the future.
The past linear chain sales model, starting from in-store auto testing and quotation to final deal, will be transformed to more of an online model. First, instead of following the retailers’ recommendation, we need to put the driving experience into the real situation. Thus, there would be a variety of ways to complement the current retailing end. Lastly, the result of a customer’s value will be different according to different statistics, brands, dealers and regions.
Peter Hage: Innovation is the Key to the Future
Setting out from the market’s point of view, China has taken up to 30% of the total auto output. In China, there are about 30,000 dealers. However, they are not mature completely. Although the sales are huge, the level of specialization needs to be improved.
Looking ahead, we can notice the lower passing rate of some OEMs who keep making efforts, and dealers are constantly promoting new services. We can foresee the situation that OEMs want to provide services directly to consumers instead of through the dealers. Therefore, dealers must seek for innovation and are no longer able to only rely on leasing contracts to make profit. In conclusion, there are still broad futures for the dealers but in different ways; they need to provide innovated services to consumers in order to survive.
The market will be more and more diverse, for example, how it looks in big cities such as Beijing and Shanghai would be quite different from that in tier 4 and 5 cities. Their customers’ actions are different. Dealers will need to make progress to implement the new technologies and solutions, which might develop some new features. Thus, dealers in different levels should consider different strategies. The role of dealers is changing. Although the growth of new cars will still be able to make profits as expected, the entire operating management should be more specialized to move forward.
New auto owners need to avoid only following the dealerships. In the past, growth was mainly boosted by the release of new products, price, and performance of dealers and the expansion of the market. At present, dealers are still young. The problem would be how to balance the increase in retailers’ profits. As for the profitability of the entire market from a systematic perspective, besides the emerging of electronic vehicles and other innovations, OEMs and dealers would still be at the center. In the future, we might not only need to focus on individual behaviors, but also the purchasing demand of corporations. It would be better for them to use the OEM network.
China provides great opportunities for dealers to attract consumers. Innovations, forward-looking strategies, online and offline businesses model cannot be ignored by dealers. Constant innovation is the key to seize those significant opportunities.
-Published on pages#42 & 43 July-2017 edition of MOBILE WORLD Magazine