Changes in sales channels in China market

According to SOHU, in recent years, with the rapid development of the domestic auto market and the consumption powers emerging in the third-class and fourth-class cities, automobile enterprises have been active in expanding their layout of marketing network. Although there was once a tide that countless auto dealers closed down last year due to the negative impact of the financial crisis, facing a fast-growing auto market, both joint-venture enterprises and independent auto companies have rushed into the tide of network expansion this year. This report will concentrate on analyzing and summarizing multi-brand sales and sub-network sales as well as the characteristics of network expansion.

　　The channels of dealers will enter into a period of rapid growth

In Volkswagen’s public strategy of 2010, its dealer outlets will be increased from 1000 to 2000. Recently the three top brands of Japan have also announced their network expansion plans: Toyota plans to add 100 outlets this year, reaching a total number of 650; the number of Honda dealers will add up to 760 at the end of this year; lastly, in Nissan’ plan, the outlets will be expanded from 367 to 408.

In this round of network expansion, besides enhancing the number of their outlet, several major self-owned brands are to transform their marketing model to sub-network sales. As the new generation of Fengyun Model is available to market, Chery has started its inside sub-networks, increasing the distribution networks to 500. Meanwhile, the outlets of Kaiwei mini-car model will be expand to 1,000 while Ruiqi, Wei-lin also have a corresponding network expansion plans. Geely will focus on three sub-brands Gleagle、Emgrand、Shanghai Englon and strive to achieve the target of ‘ 1000 outlets in 1000 Counties’. 500 new outlets have been created in more than 1800 counties. By the end of June, the number of Geely’ dealers has reached 1000 in second-line and third-line cities. BYD has gradually started its new sales channels A1 and A2 from 2008. At the beginning of this year, a new channel A3 is officially launched. In 2009, its outlets have reached 800, among which 4S shops is more than 500. Moreover, the number of dealer stores will exceed a number of 1,000. In addition to the standard 4S system, Haima has expanded an E-level system mainly in the areas where 4S shop level can not be kept.

What is more, statistics from Xinhuaxin consulting company have showed that till next year three to four manufacturers will build more than 100 networks. More than 10 manufacturers will increase about 30 to 60 dealers. Besides, some manufacturers is about to renew 10% to 15% dealers although there is no planning to expansion their outlets.

　　Expanding the number of outlets - the main way to increase sales

A study of Xinhuaxin has found out that, companied by the rapid development of the sales volume of domestic auto market, the number of car dealerships is raised drastically. In fact, there is truly a tight connection between the number of auto dealers and the sales performance. Because of the limitation of single-store dealers and the new market demands, the networks expansion is the main way to increase sales.

The co-existence of co-network sales and sub-network sales will still be the feature of the automotive distribution channels in the next few years. Since new products of some self-owned brands are being promoted continuously and the sales size is being expanded increasingly, sub-network sales will be developed fatherly.

    The rapid market demand growth in third-line and fourth-line cities promote the large-scale development of distributors

This year the growth rate of the third-line and fourth-line markets is more rapid than that in the first-line and second-line markets. To satisfy the growing market demands, manufacturers will increase investment in the construction of marketing networks in third-line and fourth-line cities.

The rapid growth of the third-line and fourth-line markets has played a significant role in promoting regional integration of dealerships. Power Diversity Automobile Trade Group, one of the biggest auto dealer groups, plans to increase its 4S shops to 300 from the current 160. Xinjiang Guanghui Auto Group, which is famous for merger and acquisition, gets a planning to build 800 4S shops in 10 key areas till 2017, with an average annual increase of 80 shops.

　　Shape number ratio of the number sales volume ratio of sales volume

　　Dealer Group 2472 25% 2,510,000 44%

　　Single-store dealer 7249 75% 3,150,000 56%

The participation of large-scale capitals is an important feature in the second round development of channel networks. Now the strength of capitals is promoting the expansion and integration of the dealer groups. Through the operation of the capitals, the dealer groups can achieve a relatively monopoly by mergers and acquisition within the regions as well as to realize the integration of national high-quality resources. The combination of dealer groups can also accelerate the growth of after-market companies. The small-scale enterprises whose model is proved to be effective will attract more attention from the capitals.

Different way of channel expansion: joint ventures and autonomous strategy

Referring to the channel expansion, strategies different enterprises adopted are distinct greatly. Some Japanese brands take a full-closed mode, emphasizing a win-win target and following the principle of developing within the networks instead of absorbing new investors. However, self-owned brands adopt a totally opposite way because they lack accumulation in the sales channels. They even have not requirements on the experiences of the dealers who submit applications. These who are willing to and have the ability can be their dealers.

　　

Full-closed mode	Follow the principle of developing within the networks instead of absorbing new investors	some Japanese brands
To open up selectively	Choose excellent dealers of other brands’ to be one’s own objects	most joint ventures and imported brands
Full-open model	Some rapid growing brands have not requirements on the experiences of the dealers who submit applications. These who are willing to and have the ability can be their dealers.	Most self-owned brands

As to the development of channels, some manufacturers such as Dongfeng Nissan begin to adopt an approach of regional authority, encouraging the dealers to become strong within the regions and stimulating them to explore and infiltrate the local markets dealers and. In addition, other manufacturers such as Guangzhou Automobile and Toyota take a way of investing or holding part of the channels through equity participation so as to control the management right of channels.

　　After-market chain models re-enter into the phase of rapid development

With the increasing amount of car ownership, consumers care more about the convenience of vehicle repair and maintenance services instead of the prices, that is to say, in the future after-sales service system, an independent chain model which is famous for its convenience will enter into a new stage of development.

Since originally created the model of micro-car repair in Hongzhou, Xiao muzhi has expanded hundreds of chain dealerships in the whole country through the way of franchising. Now it plans to develop 1,000 networks in five years’ time In October of 2007, Wu Yuzhang left Volvo and established Sure Auto Corporation. Based on the full introduction of American CarMax used-car operation mode, the most successful one in the whole world, the corporation provides customers with specialized vehicles technical assessment, transparent transaction price and transaction process as well as builds a new concept of maintaining the cars. All these chain models have injected vitality for future development of the auto after-market.

In a fast growing market, a new round of sales channel transformation is being taking place. The sales networks in the central cities are relatively saturated while the new layout of the third-line and fourth-line cities is started. In the future, the models of sales channels will be more flexible and varied. As the reformation is deepened, the potential of Chinese auto market will be released fatherly.（translator：Yalong/Jessie）

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