Business: China's motor trade Driven to the brink
Slowing car sales are a threat to shaky dealerships.
China's car market used to run like a high-revving engine.But after double-digit growth in much of the past decade, sales volumes have slowed dramatically.Barclays, a bank, recently revised its growth forecast for 2015 down from 8.5% to just 1.7%.Others think sales may even shrink.
China's car dealers, mostly newcomers to the business and over-reliant on selling new cars for their livelihoods, are struggling to cope.Carmakers frantically expanded their networks when sales were booming, and now China has a surfeit of dealers.By the end of 2014 some 26,400 had set up, according to Sanford C.Bernstein, a research firm, 60% more than in America, even though China's new-car sales are just 40% higher.Often, carmakers handed out franchises with little regard for the suitability of either the location or the dealers themselves.The German premium marques have done best at building an efficient network.
But even their dealers are having to scrap among themselves for custom.There has not yet been much consolidation of car retailing into larger chains of dealers.The 100 biggest dealership firms have just a fifth of total outlets; almost three-fifths are single-site operations, often run by a local entrepreneur with limited capital and even less idea how to flog motors.Most are powerless to resist carmakers stuffing their showrooms with surplus stock that requires heavy discounting.
Chinese consumers' enthusiasm for haggling is only being reinforced as a result.Chinese dealers have neglected the ancillary businesses, from insurance and loans to servicing and spares, that contribute much of their Western counterparts' profits, notes Jochen Siebert of JSC Automotive, a consulting firm.Dealers lack the experience to trade the second-hand cars that are now flooding on to the market.Used vehicles account for 14% of profits at American dealerships but just 2% in Chinese ones.Car dealerships' failure to grasp these opportunities has left them open for others to exploit.
Independent service garages, not linked to a car dealer, are thriving.Motorists put off by the high prices that dealers try to charge for official replacement parts are flocking to stores that sell cheap copies.Websites for trading used cars are sprouting.The low prices dealers are getting for new cars, and their failure to profit from sidelines, are forcing carmakers to bail them out.BMW, Audi, Volkswagen and Toyota have all given cash to their dealers this year to help cover losses.Carmakers are also belatedly helping them to develop after-sales services and used-car businesses.China's badly-assembled motor trade needs a complete overhaul.