China’s new car sales are set to grow by at least 5% this year – and that’s terrible news for dealers.
Unfortunately, the growth doesn’t keep pace with already-small margins shrinking – and in some cases vanishing completely.
Used-car sales are becoming increasingly important for the country’s car dealers to make ends meet – finance, insurance, and parts/service combinations are the other go-to add-ons.
The golden years appear to have gone in a market that was once posting double-digit growth figures every year. Car dealers were rolling in it, but Shen Jinjun, chairman of the China Automobile Dealers Association said everything had changed in an interview with WardAuto.
“China is changing from a seller’s to a buyer’s market,” he said.
It didn’t take a crystal ball too see that happening – with a staggering 39.4% of all profits in 2014 were brand new vehicles, no matter how big the population may be, is simply not sustainable in the long term.
Stimulating used sales seems to be the most sensible option, with the parts/service golden goose now cooked by central government regulation.
Most dealerships that offer parts and repair have been able to suck 50% of their total profit for what was generally only 10% of their business.
Dealerships were only able to sell genuine parts from manufacturers, and third-party repairs were not covered by manufacturer warranties – some things could even invalidate warranties.
The already-high component prices from carmakers were then marked up massively for the consumer to suffer – but two years ago a central government edict said it was illegal under Anti-Monopoly Law.
Dealerships may now sell third-party parts, and repairs could also be warrantied.
“So the profit in this area won’t continue to be so high,” said Shen.
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