Trend and Opportunity for Dealerships

　　On December 21, the Fifth Automotive Marketing Channels Competitiveness Forum was held in Guangzhou. In the year of 2010, China's auto circulation industry embraced a flow of public financing. The intervention of capital power has brought dramatic changes for the pattern of auto circulation industry. Passion for public financing has been ignited. State-owned, private, foreign capitals are waiting for the opportunity to enter into this industry. Under the influence brought by capital, a great change in circulation industry is about to happen. Facing the dramatic changes, what kinds of views do automobile manufacturers hold? How will the relationship between auto manufacturers and dealerships be transformed during the period of changes? In this context, the Fifth Automotive Marketing Channels Competitiveness Forum came into being. Following is the speech given by Shen Jun, Vice President of Roland Berger, a major international management consulting firm.

　　Host: Let's welcome Mr. Shen Jun to give a speech.

　　Shen Jun: Hello! I would like to share some main points with you. Today my speech will cover four topics. First one is the characteristics of channel development in a mature market. Second is the transformation of China's automotive distribution model. Third is the impact on the industry structure. The last topic is about the connection of the value of automotive services.

　　Firstly, I would like to discuss about the mature market. There are mainly three mature markets in the world, which are the United States, Europe and Japan. The feature of American market is that the channel is relatively flat and covers automobile manufacturers, regional agents and consumers. In China, with the ownership of cars increasing, the centralized development cannot adapt to the current situation. We should pay attention to regional consumption. So what is the feature of Japan's market? Japanese automobile manufacturers and dealers are very closely and the authorization is relatively stable. Generally the layout is in accordance with administrative divisions. The competition between each other has been under control. During this process there is a characteristic. Some of Japan's distribution channels receive direct injection of capitals from manufacturers. In China, the proportion of direct injection of capitals is not that great. So will China follow the same practice in the future? We have such kinds of expectations. Based on the concerns about cost, manufacturers establish their brands in the central regions of large cities. These regional manufacturers will provide subsidies for dealers, such as huge financial support in the form of equity investment or through other methods.

　　In addition to direct investment, there are other channels. For example, Toyota has four channels in Japan and takes concrete measures according to the different target consumers.

　　The features of channels in the United States are unlike those of Japan. The channel is relatively flat. There is regional distribution management. Some large distributors became listed companies. Some enterprises are the members of Fortune 500 list. There are also tremendous growth characteristics.

　　In the United States, the division is in accordance with postal codes. There are a large number of laws about automobile dealerships. For example, manufacturers are not allowed to suddenly replace or cancel contracts. Some states have initiated legislation to forbid the direct sales. Over the past few years, the United States has reduced the amount of channels.

　　As to Europe, Europeans have very strict requirements for fashion, design and quality. European Union wants to create a large market. Agents are responsible for the distribution of automobile manufacturer and channels are relatively longer.

　　What lessons can China learn? In the future, the amount of channels will increase. There will be less centralized management. Manufacturers have begun the specific layout.

　　The second aspect is about the investment of distributors. Basically speaking, China's automobile dealerships grew from weak to strong. Some companies believed in the future prospect of China's auto market and then entered into this market. Some were eliminated and some have become very strong. The risk for the cooperation with the major distributors is quite high.

　　I would like to talk about philosophy of China's channel model, which is mainly about the evolution of forms. Currently, dealerships exist in the form of 4S shops. There is second-tier network distribution. With the development of different regions in China, different consumers provide living space for auto market and channels. In fact, auto companies are still facing a major problem, which is how to keep growing in the fast-changing auto market. The infiltration level and speed of channels are faced with obstacles. There may be no problem in the first-tier cities. However, problems will emerge in third-tier cities. In response to certain issues, Dongfeng Nissan set the diversified terminal with divided stages. The second-tier business has been incorporated into the first-tier management.

　　The change of large distributors is also an important topic. We estimate that in China there are 4,000 authorized large dealerships and this number is still growing. At the same time, the strong distribution model has been formed. They will own a greater voice. For large-scale distributors, they have the fastest way to get some opportunities along with the rapid development of auto market. For the dealerships whose scales have reached a certain level, the strong ones will become stronger. China also has some small dealerships, which play a fundamental role.

　　If dealerships are relatively large, automobile manufacturers may get trapped in a dilemma with great worries. On the one hand, the major automakers want to cooperate with large dealerships. On the other hand, they also have a lot of concerns and usually consider the cooperation carefully. In the past, the development channels referred to the automakers' channels. The manufacturers can control the regional layout and amount of dealers, which are critical for the improvement of stability of network. Dealers also consider how to optimize brand portfolio. All the parties are in the pursuit of high-end and developing brands and they are also concerned about how to optimize the layout. Large distributors have several advantages including financing. These economic factors propelled the development of automakers. We have some cases of luxury vehicle producers. You also can see some cases in Japan's auto market. In the future, automobile manufacturers and dealerships are able to exchange more information in the fields of accounting, finance and marketing.

　　Currently Dealers are divided into several categories. Large distributors are divided into national and regional dealerships. Manufacturers and distributors established Strategic cooperation which has many benefits, such as the development of network. However, there is a dilemma. For a certain place, what kind of dealerships should be founded, a small shop or a completed one? At this time, the development can be achieved through the form of package. At first, automaker can find a small-scale dealership and it will gradually evolve into a completed one. There are more concerns about diversity. When the average growth rate is 40%, the growth of luxury cars can even reach up to 80%. A series of markets are waiting to be developed and that is why the auto market has raised wide concerns in capital market. The future prospect of China's auto market is very broad.

　　Then I would like to discuss about the issue of value chain of automotive service providers. Just now the head of Power Diversity Automobile Trade said that the criterion for the sales of vehicles had been standardized. The difference between two auto companies lies in the field of service. The standardization of service is very important. However, China's companies have not reached this level. After consumers buy vehicles, their cars need maintenance and repair. There are huge profits in this service market. In terms of leasing, fast repair, components and service, China has been left far behind compared with the average level in the world. We can expect the pattern which is led by 4S shops is only one option. In the future, there will be independent after-sales service and fast repair alliance, which contains huge space. If you have enough funds and adequate management skills, you can enter into those fields.

　　I think that China's auto market is embracing very profound changes. Therefore Sohu chose an appropriate subject which fits in the current situation. We should learn from the experience of mature markets based on China's national conditions and reform channels regarding the differences.

　　Thank you! (Translator: Qinghua/Hanxin)

　　See Original Chinese Report Please Clicks:

　　http://auto.sohu.com/20101221/n278434778.shtml

　　Copyright notice

　　All images and texts displayed on auto.sohu.com are copyright protected. Any unauthorized reproduction in any form is strictly forbidden. Content copy, store or transmit should acknowledge auto.sohu.com as the source of the material.