Sales growth next year not optimistic

[Editor’s Note] December 10^th, host by SOHU AUTO the “2011 Beijing auto market forecast Salon and the First Regional Marketing Summit" held at Wenjin International Hotel.

He Yi, Deputy Editor of SOHU, general manager of Automotive Business Unit, Gu Xianghua, Deputy Secretary-General of China Association of Automobile, Luo Lei, Deputy Secretary-General of China Automobile Dealers Association, Tang Jing, Senior Analyst of Polk Automotive Information Resources, and nearly 40 CEOs gathered on the scene to discuss and exchange the trend in 2011 Beijing auto market. Following is statement of Luo Lei, Deputy Secretary-General of China Automobile Dealers Association.

I am much honored to accept the invitation to participate in regional marketing summit, and am also very pleased to share with you the topics some of the common people interested in this occasion.

Beijing car purchase restriction will be a big blow to automakers

Now it is the end of this year, what everyone is most concerned about is the policy direction for next year. We firstly take a look at the three incentive policies since last year, tax reduction for vehicles with small displacement, car to the countryside and car trade-in. It is very clear now that the tax reduction for vehicles with small displacement will not end. And the other two policies will also propone possibly in my opinion.

Yesterday, I received a text message about Beijing’s intention to solve traffic jams. No matter automakers or dealers are not willing to see car purchase restriction is included in the program.

I believe that if this policy is introduced, certainly is a fatal blow to both manufacturers and distribution companies. Simply take a look at the sales, in Beijing this year the sales reached 700 thousand units, if 200 thousand units are be suppressed next year, what does this mean? The market sales will decline by five sevenths. Our dealers and manufacturers, particularly in the Beijing region, must think out some strategies to deal with this situation.

At the same time, I recommend all Beijing’s regional manager and sales manager hand this information that such hard can never be fulfilled. I have not seen the program details, but I can feel there will be one rule related to purchase restriction. To my view, car owners will agree with this rule while those who have not got a car will strongly oppose.

The following views are purely my personal opinion.

Two key words: Dealer groups and listing

First, the outbreak of the Chinese auto market is the certain result of China’s economic development and the development of automobile market. From the three graphs, in ten years from 2000 to 2009, GDP grew by 275% while the urban per capita disposable income grew by 173%, the rural per capita net income increased by 129%.

From a national perspective, the wealth has been in rapid accumulation. The same thing has been happened the private consumers. From 2.06 million in 2000 to 13,645,000 in 2009, Domestic vehicle increased 5.6 times. If 18 million can be achieved this year, it will be a historic breakthrough of China.

No country in the world can top this data. In 1989, there were 56 companies won the qualification to make sedans. Now the passenger car dealers registered have reached 63,000. Actually there are 55,000 in operation. Although they are not all 4Sshops, most may be secondary distribution network.

Last year we did a research, domestically there appeared several so-called domestic super dealers. PANGDA topped the list with 35.5 billion and followed by with also more than 30 billion. According to their CEOs, this year their sales income will definitely exceed 50 billion Yuan, driven by the rapid expansion of China auto market. We all know in the last century PANGDA was only a small company in Hebei Tangshan. It expansion is not just because its business strategy, but also the development of China auto market, which is even more important. This is survey about satisfaction to dealers newly released at our annual meeting this year. Here I only want to talk about the enterprise channel operation, 67.9% of enterprises are profitable this year, 18.6% keep even, only 13.6% are in loss. Meanwhile, 55.4% expressed are satisfied with operating conditions while more than a half satisfied with operating conditions of other companies. One-third of choose just okay. Only 12.9% said dissatisfied. Then let us take a look at the loss, imported car distributors accounted for 3.9%, joint venture brands30% while independent brands 66%.What does this mean? It shows that independent brands should give dealers more supports.

Old dealers with a history more than five years accounted for 77.35% of respondents. Nearly 15% of businesses can keep even, only 8.1% are at a loss. Here is a rule; older dealers will have better earnings. Then we will take a look at the dealers with a history of only three years, only 54.4% are profitable while 23.7% are suffering loss. In generally, most dealers can reach their sales target.

The fourth refers to certain degree of difficulty. The left column, less than 20% expressed there has been no much difficulty, 80% said to finish sales target is quite easy. This year’s situation is generally quite good. Compared to common dealers, dealer groups have significantly stronger competitive advantages.

In March this year, Dalian ZHONGSHENG was listed in Hong Kong, though capital raised is less than expected, the group improved competitiveness significantly. ZHONGSHENG had only 30 4S shops at the end of 2008 while 47 one year later. This year, through listing, its 4S shops have reached 60 in May. They plan to expand 4Sshops to 100 at the end of this year. Therefore, listing can help achieve the expansion of business scale and substantially increased competitiveness.
November 24^th, ZHONGJIN automobile trade corporation finished backdoor listing. It business is mainly imported cars, which are very popular this year. Therefore, operating income of ZHONGJIN at the first half of this year already exceeded the whole last year. Zhejiang YUANTONG also achieved backdoor listing. There are two other companies; Lentuo group launched road show at the U.S. NYSE during our annually meeting and Hubei SHENGZE carried out at the end of last month at Hong Kong security. More dealer Groups may be listed next year, which will make them grow stronger in financial strength and scale of operation.

National Information Center has some long-term forecast of the automotive market; the first is passenger car market will transit from the first period into the second period of rapid growth, which is to maintain an average growth rate of over 10%, though significantly different from the first period. I did a rough calculation; the decade from 2000 to 2009, average growth rate of new car sales in China auto market is just 25%. The second feature is users have gradually shifted from high-income to middle-income group. Third, regional growth is shifting to second and third tire cities. I fully agree with his prediction.

From the above chart, the vertical axis refers to earnings capacity, or is called competitiveness while the horizontal axis represents the strength of relationships. Luxury brands have a stronger competitiveness and higher operating profits. But ordinary brands account for the vast majority. The overall competitiveness of dealers is influenced by five factors such as operational performance, operational efficiency, operational management, operational support and operation of infrastructure.

Then let us take a look at the risks channel businesses are facing. We all know that China auto market at this stage has met the three increasingly prominent contradictions. Firstly, the contradiction between cars and transportation has become increasingly prominent, which is the root of Beijing purchase restriction. Secondly, the contradiction between vehicles and energy has become increasingly prominent. Since our cars are largely depend on the imported fuel, excessive growth of the cars, especially the rapid growth of the traditional automotive technology, will inevitably lead to our nation’s energy crisis, which is a very serious problem. Third is the contradiction between the cars and environmental protection.

Everyone disagrees with shutting down factories in cities to reduce urban pollution, in case the GDP will be influenced. Therefore, as for auto industry, on one hand, we should largely develop new energy vehicles, on the other hand, fast growth of private motor vehicles need to bring down.

Unoptimistic about automobile market growth next year

Then let us take a look at opportunities and risks channel businesses facing. The auto market growth has transited from high speed to moderate. Especially in Beijing this year, I have heard even FAW-Volkswagen’s Jetta will cost time to wait. Not only in Beijing, in the whole country, consumers are purchasing crazily in case that incentive policies will be ended. Beijing car purchase restriction to be released is increasing this kind of panic consumption. There is a famous saying in China, things at peak will decline. Just go back to the phenomenal growth in 2002 and 2003, then what is the situation in 2004?

The second wave of market came. Since there has been an explosive growth in 2009 and 2010 in the Chinese auto market, I believe next year will be a period of relatively low. A second risk, car ownership in major cities shows saturation. I simply calculated, Beijing is reported to reach 4.7 million units, suppose the population is12 million, that means every one family owns 1.175 cars, if the resident population of 1,800 people is all included, the number is 0.8 or so. In Beijing and other large and medium cities the automotive markets are showing saturation. Third, maintenance time is extended. 4S shops in the past two years have accumulated a lot of customers. Suppose one shop sells a thousand cars annually, in two three years there will be four thousand units. Customers may face the problem of long waiting time for maintenance.

Five opportunities for auto channel companies

First, from the national macro level, in the just-concluded fifth plenary session, the central cleared that in the next five-year economic development planning, China need to transform the way of economic growth and also put forward vigorously to support the development of modern service industry. Who belongs to the modern service industry? I think at this stage such as logistics companies and auto service trade enterprises are a leading modern service industry. So for our channel business it is an opportunity. Second, although the first-line market is still saturated, overall growth rate will not be as high as the original, but from the long-term trend, the Chinese market is far from saturation. Last year, per capita car ownership is only 47 in one thousand people, and fall behind the level of 600 in developed countries. Third, the emerging after sales services market has huge potential. Fourth, the various suppliers speed up the network expansion planning. Here you are mostly regional managers and are aware of your own channels, which should be very large. Fifth, the favor of financial institutions provided funding support for enterprise development. For example, Minsheng Bank has been frequently contacted with the leading car dealer groups. At the same time, we can also see venture capital firms or other financial sectors are communicating with CEOs of dealer groups. The declining market growth rate refers to increasing competition rather than market downturn. Therefore, how can we improve our immunity?

The first is opportunity, through market competition and with the increasing popularity, the competitiveness of our enterprises will be improved. Second, last year the auto market grew rapidly. So we should be prepared for market decline. Third, many of our dealers should through the process of recycling, including business and service model innovation to enhance the core competitiveness. This year, we at the industrial annual meeting praised more than 60 enterprises for business and the service model innovation. Fourth, the stronger enterprise groups achieve rapid expansion and resource integration through mergers and acquisitions. Fifth, the networks are extending to the second and third tier markets. As for enterprises, they should seize market opportunities, although have high economic growth, first-tier cities like Beijing, Shanghai, Guangzhou, are limited by many such as factors, ownership and urban congestion. But the second and third tier cities and rural markets are gradually rising. During our research, in the western region, growth of after sales was much higher than the national average.

Thank you all!

(Translator: Yalong/Jessie)

See original Chinese report Please click:

http://beijing.auto.sohu.com/20101210/n278226774.shtml