China'S Car Market Enters The Stock Age: Industry Adjustment Seeks Survival Rule

Song Wenhui photo

China's auto market, which has been declining for 16 consecutive months, is still showing no signs of improvement. The market statistics for the past 10 months show that the negative growth in 2018 will continue in 2019.

The continuous decline of the auto market is the result of the superposition of the market's own factors and macroeconomic factors. However, it is still difficult to make a clear judgement on when the car market will pick up and the trend in the coming period.

For the 2020 Chinese car market and the 2019 annual meeting of China Automobile Circulation Association held in November 15th, several experts at the scene gave different predictions.

Lang Xuehong, Deputy Secretary General of the China Automobile Circulation Association, is more pessimistic. She believes that the Chinese auto market is not going to bottom this year and will continue downward next year. It is estimated that the annual sales volume will drop by about 10%, about 22 million 500 thousand.

On the contrary, Cui Dongshu, Secretary General of the National Federation of China's Federation of transportation unions, predicted that the market will be better next year as the national tax reduction effect is gradually showing up, and the annual sales volume will increase by 1%.

Wang Qing, deputy director of the Institute of market economy of the State Council Development Research Center, predicts that the market decline will be narrowed in 2020, and positive growth is expected to be achieved. From the perspective of long-term mechanism, China's auto market is in the stage of growth from medium to high speed to middle and low speed, and even to the stage of spanning. The growth rate of new cars will gradually change from 11%-12% to 4%-5% or even to 3%-4%, and this process will last 14-16 years.

In the short term, China's auto market is hard to recover to the high market level in 2017, and the industry has entered a period of adjustment in the stock era. In the process, some problems and contradictions that have been obscure and neglected in the rapid growth of the Chinese market have been gradually exposed.

When the continuous high growth tide recedes, the car enterprises begin to show obvious polarization. The extensive development of China's own brands in the past has been difficult to cope with the brutal market competition. The market share has been explored and some brands have been wandering on the edge of the elimination. With the downlink of the market and the switch of the national six emissions, the price war has escalated again, and dealers are facing severe operational pressure.

The "false prosperity" of new energy vehicles has also been exposed. The steep decline in subsidies and the drop in sales of new energy vehicles are the first time that new energy vehicles have experienced negative growth for the first time.

However, it is certain that after a period of adjustment, China's automobile market will still have room for growth in the future. The key is how to cross the current "cold winter" and find the way of development in this process.

Although anxiety and unrest are still spreading, more industry participants begin to think and face problems and regain confidence, and try to find survival rules in the industrial adjustment period.

Stock age seeks new wave

At present, the adjustment of China's automobile market is made up of internal and external factors. It is also affected by external factors such as the downward pressure of the national macro-economy, the lack of market confidence, the trade friction between China and the United States, and the overdraft of the auto industry.

There are two distinct characteristics of the market in two consecutive years: the sales of new cars in the second tier cities are better than those in the three or four line cities, while the luxury brands keep growing, and the proportion of sales increases significantly. This is mainly due to consumption upgrading and replacement demand.

Earlier, some enterprises believed that the demand for new cars in the first and second tier cities had been saturated, and they had focused their attention on the three or four tier cities and continued to sink their channels.

It is worth noting that ten years ago, China's car market grew rapidly, and cars began to enter more and more ordinary consumers' families. At this point, China's automobile market has begun to gradually enter the scale of the replacement period. Moreover, as the market base continues to expand, the proportion of the population will continue to expand in the future.

"China's automobile market has entered the stock market, so we must enhance and enhance the interaction between the two major markets of new cars and second-hand cars, and we should increase the stock by stimulating the stock. In other words, we need to increase the replacement rate to drive new car sales." In November 15th, Shen Jinjun, President of China Automobile Circulation Association, said.

Replacement process is often accompanied by consumption upgrading. This has resulted in a significant decline in most joint ventures and autonomy in the past two years, while the luxury brand has a unique landscape.

Of course, there are also obvious divisions in the various subdivisions, especially in the two sections of joint ventures and autonomy. Several Japanese joint venture brands have gone against the trend, but Changan Ford, Dongfeng Shenlong and Beijing modern enterprises are facing severe market challenges.

Under such circumstances, the price system of the car market began to fall like "Domino". Price reduction has become an important means for many car companies to "protect sales volume and maintain share". The joint venture brand begins to encroach on the survival space of its own brand, though it will reduce the positioning of the brand and reduce the profit margin.

This has sustained impact on the independent brand. The market share of China's own brands has been less than 40% for several consecutive months, and is still shrinking. In this process, the Great Wall, Geely and other head brands can also rely on large-scale advantages, and maintain stability through various clearing stocks in the short term. But many third tier independent brands are hard to survive.

Prior to that, the network transmission of Huatai, Zhongtai, Li Fan, cheetah and other four car companies because of the existence of bankruptcy risk, and the banks for risk investigation, to a certain extent, can reflect the edge of the existing brand survival dilemma.

The development of industry to high quality is an indisputable fact. The era of enjoying market dividends by relying on cheap products has ended. The independent brand has reached the point of direct competition with the joint venture brand.

Earlier, the rise of the independent brand was mainly due to the rise of the SUV market, and its own brand caught up with the wave earlier than the joint venture brand. However, from the speed and matrix of the product launch, the joint venture brand has increased the offensive of SUV strategy in the past two years, and the advantage of the first brand of its own brand will gradually shrink.

Stock market, car companies need to find new growth momentum.

Similar to the embryonic stage of SUV market, the independent brand in the field of electric vehicles and intelligent network alliance is once again ahead. However, the impact of subsidised new energy vehicle market is much higher than expected, and it also gives the opportunity of independent brand thinking.

"The decline in sales of new energy vehicles in recent months is a good opportunity to reflect. Comprehensive reflection is actually conducive to the next long-term development of the industry. " On November 11th, Xu Haidong, Assistant Secretary General of China Automobile Industry Association, told reporters on twenty-first Century economic report.

From the perspective of the development of the whole automobile industry, new energy, intelligent network union and automatic driving provide new opportunities for landing, but there are also high risks. These new areas that require huge investment require huge amounts of capital, talent and research and development. Only the big players will have more chances to persist and break through.

In the adjustment period of China's auto industry, the new wave will bring new changes and business opportunities. But this round of ebb and flow is far more brutal than ever.

Car dealers cross the throes of labor

"In 2019, under the downward trend of the automobile market, we met with a series of new challenges such as the Xi'an Mercedes Benz incident, the six emission switch of the state, and the strengthening of environmental supervision. This has brought enormous pressure to the development of the industry, and the loss of dealers has been expanding." Shen Jinjun said.

In the process of car market adjustment, the dealers in the circulation link have also been severely affected. In the first half of this year, Guanghui, Zhongsheng and many other head distributors appeared a decline in net profit.

According to data from Kaida Research Institute of China Automobile Circulation Association, the single point profit level of dealers has generally declined in the first half of this year. European brand dealers have the highest profit per store, down 25.77% to 3 million 407 thousand yuan. The Japanese and Korean Department's pre tax profit of single store was 1 million 474 thousand yuan and 906 thousand yuan respectively, while the single store profits of the US and middle brands were all in a loss. Among them, the United States Department's first half profit in the first half of this year was -10.9 million yuan, a profit of 580 thousand yuan in the same period last year. The first half of this year was 445 thousand yuan in the first half of the year.

In November 15th, a car dealer told reporters that due to huge inventory pressure, the profit of new car sales was tightened further. Some models needed to lose money in sales. Dealers' gross profit of new cars was generally negative, and they could only benefit from other value-added ranges. In the long run, this is not conducive to the healthy development of the industry.

"High quality development, structural upgrading, and meticulous management" are the inevitable choices for the development of dealers. Before the strategy of "sales volume theory" will eventually be eliminated. Wang Chunyan, President of Kaida Research Institute of China Automobile Circulation Association, said.

With the widespread use of the Internet, more and more car dealers take the initiative to embrace the Internet and digital economy, focusing on core competitiveness to enhance operational efficiency, thereby enhancing user experience and satisfaction.

However, in order to solve the increasingly prominent contradictions between manufacturers, Shen Jinjun believes that the production enterprises should change the mode of production and transform the "fixed sale" into "selling the products", and manufacturers will reach a consensus on "reasonable inventory".

As the market enters the stock market, the business direction of the automobile circulation industry needs to be changed in time.

It is worth noting that China's automobile ownership has reached 250 million vehicles. Stock has become the focus that must be faced and concerned. Therefore, it is very important and urgent to actively and expand the second-hand car trade. At the same time, the role of automobile finance in stimulating consumption has not yet been fully realized. The market space of the vast three or four line cities and rural areas has not been fully excavated, and the business environment and fair competition order of the market need to be improved.

"Through policy guidance and structural adjustment, the development of the two driving wheels for the healthy development of second-hand car and auto finance will truly form the endogenous driving force to activate the market." Shen Jin finally said.