New Brand Regulation Rules Worth Waiting

Last week, media reports said that the revised version of Rules on Sale of Automobile Brands would be released soon. Such news attracted much attention within the automotive industry.

We know that Rules on Sale of Automobile Brands was jointly enacted by the Ministry of Commerce, National Development and Reform Commission and the State Administration for Industry & Commerce (SAIC). Since its implementation on April 1 2005, controversy, criticism and doubt have never come to an end. Generally speaking, majority of the people are opposed to the rules. Viewing from the surface we can find that there are conflicts between trading market and 4S dealerships. Actually that issue is concerned with some broader fields including resource, channel and the developmental position of Chinese automotive industry. It should be reflected in the following three aspects that the new version of Rules on Sale of Automobile Brands worth waiting.

1. The development of dealerships will become more practical.

The promulgation of Rules on Sale of Automobile Brands should be a historical progress for the development of China automotive industry. A hypermarket with a mixing of different brands will become a single brand, which integrates the businesses of sales, repairs, maintenance and spare parts, which is indeed a new model.

In the initial stage of the implementation of the "old approach", some people described the relationship between trading market and 4S dealerships as a fighting game between dragon and tiger. In January 1999, FAW-Volkswagen suddenly announced the withdrawal of Jetta from the Beijing Asian Games Village market, which became a typical example. Under such circumstances 4S dealerships began to stand tall. There were more and more 4S shops and a growing number of the dealerships became more luxurious. FAW-Volkswagen and Shanghai Volkswagen began competing with each other to build more 4S shops in Beijing, with over 30 dealerships for each side. Other automakers took part in that competition as well.

Along the third ring road, the fourth ring road and the fifth ring road in Beijing, you may find a large number of luxurious 4S shops, resulting in a waste of resources. In this way, after going through a period of glorious emergence, 4S shops were faced with a very tough situation. As early as in 2005, some 4S dealerships met a lot of difficulties and tried to survive in the market by borrowing money to purchase cars. It is a simple truth that a market cannot feed too many participants. However, a lot of people did not find such a simple truth. The previous version of Rules on Sale of Automobile Brands propelled the trend intentionally or unintentionally.

The new regulation method may refine the model of 4S shops, such as establishing some 1S, 2S, 3S shops or auto-trading markets based on the local economic conditions. The corresponding functions may be delegated to some repair shops to save resources and achieve a win-win solution. We should refine the social division of labor and utilize the resources comprehensively. Thus investors' interests would be protected to a greater degree.

2. Dealerships can say No to automakers.

Over the years, dealerships acted like a servant when they were faced with automakers and had no rights to speak out their opinion. In order to win the right of dealership some shops were forced to accept many conditions of inequality. For example, some dealerships had to pay a huge deposit or decorate the shop according to the requirements of manufacturers. They may even be forced to replace office products. With the promulgation of new regulation rules, dealers will embrace a new sense or begin a new life. Dealer can submit comments for the unreasonable demands of manufacturers or come up with a more scientific and rational scheme for specific situations.

In this way the equality is the most important factor. Any product should contain the trinity of product-sell-buy in order to generate values. Though the three parts may have different needs, they actually become a "community of interests" and share equal rights and interests. Especially for the parts of production and sales, they are just like twins and with the absence of either one of them the vested interests could not be achieved. In another way, if the departments of production and sales could cooperate with each other, consumers would obtain high-quality services. A win-win solution will generate economic and social benefits, resulting in dual proceeds.

3. Consumer will get better service.

Majority of leaders of 4S shops have realized that the customers are the most important. Therefore the leaders asked the working staff to follow that practice in order to attract more and more customers and gain a good reputation. The quality of service is the test standard. The premise of promoting the quality of service is that dealerships should have a harmonious relationship with each other, especially in terms of the capital requirements. If the dealerships are able to operate daily business soundly, they can conduct a series of activities to enhance the treatment of consumers, such as extending the first period of warranty, expanding the scope and magnitude of preferential offers and increasing some free services.

It is worth mentioning that the new regulation rules will change the privileged position held by automakers. Some manufacturers just care about their targets and reduce the amount of vehicles which will be sent to dealerships in order to carry out the so-called hungry strategy. The production and sales should be combined organically to ensure that customers could get their cars as soon as possible.

To sum up, the revised version of Rules on Sale of Automobile Brands is accompanied by changes in the development of the automobile industry, reflecting the characteristics of the times.

Parts of the above observations are based on realistic scenarios and some are industry experts' views. So what will the new regulation method be? We hope that relevant departments could respect public opinion and care about people's needs and release the Rules on Sale of Automobile Brands as soon as possible.(Translator: Qinghua/Hanxin)

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