As the auto industry's late-stage excessive internal competition leads to an increasingly fierce price war, can dealers, whose operational and profitability capabilities are in decline, save themselves?

Within just a week, two major industry organizations of car dealers have successively appealed to higher authorities, stating that car dealers are facing a critical moment.

On September 18, the All-China Federation of Industry and Commerce organized a corresponding symposium in Beijing to report the current state of the industry and suggestions to relevant national departments. On September 23, the China Circulation Industry Association issued a statement saying that it had officially submitted an "Urgent Report on the Current Situation of Car Dealers Facing Financial Difficulties and the Risk of Shutdown" to relevant departments.

Affected by factors such as excessive inventory, dealers are forced to sell at low prices. According to the relevant data analysis by association experts, in August of this year, the overall discount rate of the new car market was 17.4%. From January to August this year, the "price war" has caused a cumulative loss of 138 billion yuan in the overall retail of the new car market. Such a large-scale loss puts dealers at risk of breaking their capital chains.

In the view of Liu Yingzi, the chairman of the National Federation of Industry and Commerce Car Dealers Association, the main reasons for the predicament of the dealer industry include the downward economic pressure leading to weak car consumption, excessive competition leading to market disorder, and the existing system and regulations failing to adjust and improve the unequal market status between car dealers and manufacturers, as well as the faster-than-expected development of new energy vehicles.

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It can be seen that as the price war in the auto industry becomes increasingly intense, some disorderly low-price wars in the market have also harmed dealers. Under the risk of forced low-price sales and capital chain ruptures caused by factors such as excessive inventory and losses, dealers are falling into a quagmire.

Personnel from the above-mentioned industry associations said that if the situation were not really critical, they would not appeal in this way. They earnestly request relevant industry departments to provide guidance within the industry and introduce phased relief policies. They also hope that all parties will view this appeal objectively to avoid over-interpretation and pessimism.

It is worth noting that on July 30, the Political Bureau of the CPC Central Committee held a meeting to analyze and study the current economic situation and deploy economic work for the second half of the year. The meeting emphasized the need to strengthen industry self-discipline to prevent "involution-style" vicious competition.

"Involution-style" vicious competition deviates from the correct price mechanism and orderly competition track, relying solely on price reduction and mutual denigration and other unfair competitive means to compete for limited market resources. The result is that almost all participating car companies deviate from expectations and suffer losses. Wang Qing, deputy director of the Market Economy Research Institute of the Development Research Center of the State Council, pointed out that the car market is deeply involved in the "price war". Most car companies sell cars at prices lower than the cost for a long time, falling into a forced price reduction dilemma. Not only has it not achieved the goal of exchanging price for volume, but it has also entered a vicious cycle. This is no longer an effective market resource allocation price mechanism, but a distorted price mechanism.Car dealerships have been exposed to the cold wind for too long. The automobile consumer market is no longer experiencing rapid growth; new energy vehicles no longer require complex maintenance; with the help of intelligent connected technology, vehicle manufacturers hope to keep users in their own hands and build their own stores... Car dealerships, an industry with annual revenue over a trillion and more than 500,000 people employed, are now facing widespread losses. Where will they go in the future?

The smoke of price wars is still there, and dealers can't bear it.

The "price war" in the automotive industry started in 2023 and has lasted for more than a year, and now the battle is still ongoing. This year, more and more new car manufacturers are capturing the market by lowering prices, and traditional brands have to participate in the price war to maintain market competitiveness.

According to statistics, in the first eight months of this year, the total number of domestic market price reduction brand models is 173, which has exceeded the total number of price reduction models last year.

On September 18, Cui Dongshu, the secretary-general of the Passenger Car Association, wrote that in recent years, the technological innovation of new energy vehicles and the competitiveness of new products have been increasing, while the introduction of new fuel vehicles is weak. At the beginning of this year, the price war started early, and some popular new energy models have a price reduction of nearly 20%, with a large price reduction.

According to the data provided by Lv Jinghong, an analyst at Bloomberg New Energy Finance Intelligent Travel, the average price reduction of domestic new energy vehicles has increased from 6,700 yuan in the first quarter of last year to 16,000 yuan in the first quarter of this year. This has also led to the weighted average selling price of new energy vehicles in the first quarter of this year being almost equal to that of traditional fuel vehicles, and 2/3 of the new energy vehicles on the market are priced lower than the same category of fuel vehicles.

With the price reduction of new energy vehicles, fuel vehicles join the price war with a more aggressive attitude to cope with market challenges. According to the data from the Passenger Car Association, from January to August 2024, there were 61 price reductions for conventional fuel models, with an average price reduction of 32,000 yuan and an average price reduction of 11%. In August, the promotion of luxury fuel vehicles reached 24.3%, which was significantly better than the 25.1% promotion last month, showing a trend of explosive growth from May to August.

Faced with more new energy vehicles entering the market, Chinese independent brands capturing market share, and the comeback of joint venture and foreign brands, many car companies are facing year-end sales targets, and may continue to use price reductions as a strategy to occupy the market, and the price war will not stop.

However, the excessive internal volume of the automotive circulation industry, on the one hand, affects the healthy development of the industry, and on the other hand, it also leads to the obstruction of automotive circulation, increasing the operating pressure and reducing the profitability of dealers. This year, car dealers have frequently encountered survival crises, including Guanghui Auto, Yongao Investment Group, and Senfeng Group, all of which have been exposed to operational difficulties. Nine dealers of Beijing Hyundai jointly demanded to suspend car delivery and once faced inventory pressure.

The first half of the year's dealer data released by the China Automobile Circulation Association shows that only 28.8% of dealers completed their half-year sales targets in the first half of the year, and the proportion of dealers with a target completion rate of less than 70% still reached 33.3%. In addition, only 35.4% of dealers achieved profitability in the first half of the year, while the proportion of loss-making dealers reached 50.8%, and the proportion of dealers with a break-even balance was 13.8%. Currently, dealers are facing a severe loss situation.Yan Jinghui, a member of the Expert Committee of the China Automobile Dealers Association, believes that due to fierce market competition and frequent "price wars," automakers and dealers are vying for market share through price reduction promotions to achieve sales targets. Under the existing automotive distribution system, dealers are seen as reservoirs for the vehicle manufacturers. Dealers import vehicles in bulk from the manufacturers and then adjust the selling prices based on market conditions. For the manufacturers, this helps to reduce their own financial pressure. The two parties agree on a sales target, and within different ranges, the manufacturers will offer dealers different percentages of sales rebates, which is precisely an important source of profit for the dealers' sales business.

To meet the sales targets set by the companies and to obtain corporate rebates for operational profits, under the influence of price wars, most dealers can only follow suit by reducing prices to sell cars and selling off inventory, leading to a severe reversal of purchase and sales prices, resulting in greater losses the more they sell.

The problem is that in the current situation where profit margins are becoming thinner and thinner, dealers also face the immense pressure of financing maturities and difficulties in fulfilling their obligations, increasing the risk of their capital chains breaking.

As a result, on September 23, the China Automobile Dealers Association officially submitted an "Urgent Report on the Current Financial Difficulties and Closure Risks Faced by Automobile Dealers" to the relevant government departments. It pointed out the predicament that dealers are currently facing due to intense price wars.

Operational pressure is looming over the entire industry, and the relationship between dealers and manufacturers is becoming increasingly tense.

The National Federation of Industry and Commerce Automobile Dealers Chamber of Commerce released a survey on this year's dealer satisfaction with manufacturers. The survey results show that this year's satisfaction level is 56.1%, setting a new low for dealer satisfaction with manufacturers, and this decrease is also the largest in history.

In the view of Lu Weimin, chairman of Anhui Automobile Trade, traditional automakers ignore market realities, blindly pursue unrealistic production and sales scales, and use their advantageous positions to harm the legitimate rights and interests of automobile dealers, which is the root cause of the crisis. He suggests that relevant departments guide manufacturers to objectively set reasonable production and sales targets and wholesale prices, actively coordinate with dealers to handle subsequent matters, and optimize the dealer withdrawal mechanism.

There is a close relationship between the vehicle manufacturers who make cars and the dealers who sell them. Fan Mingzhu, president of Yuntu Group, calls on manufacturers to reduce or waive the supporting assessments and operational standards for dealers, and to jointly resist risks with dealers.

Do automobile dealers still have a way out?The automotive dealership industry is no stranger to financial difficulties. The once-reigning "King of 4S Stores," Pangda Automobile, filed for bankruptcy and reorganization in 2019 and was delisted in 2023; the largest luxury car dealership group in Taizhou, Zhejiang, Zhejiang Zhongtong Holding Group, closed all 19 of its 4S stores; in early 2024, Guangdong Yongao also announced bankruptcy, leading to the closure of over 80 4S stores under its umbrella. Subsequently, the well-known dealer Yancheng Senfeng Group was also reported to have financial issues. On August 28, 2024, China's largest dealership group, Guanghui Automobile, was officially delisted from the stock market.

Dealership financial crises often severely harm consumer interests. Some dealerships facing operational difficulties may mortgage vehicles before selling them to obtain cash flow, which often leads to consumers paying in full but being unable to take delivery of the vehicle or register it, forcing them onto a long road of rights protection. Therefore, the operational stability of car dealerships is of great importance.

Looking back over the past decade, China's car consumption market has been a typical growth market. Even though there have been periods of sluggish car market consumption, it has been short-lived and the market has recovered quickly; more often, it is a case of different car brands shining in different regions. As a result, car dealerships were once keen to expand their business scale and scope. During the high-growth period, this strategy indeed brought higher revenue, but it also increased operational complexity and financial pressure.

"The current 4S store channels generally face the problem of low capital efficiency and oversupply. The rebalancing within the industry is inevitable," said an unnamed car dealership manager.

A 4S store, short for automobile sales service 4S store, is a car franchise business model centered on the "four-in-one" concept, including整车销售（Sale）、零配件（Sparepart）、售后服务（Service）、信息反馈（Survey）, etc. It has a unified appearance, unified logo, unified management standards, and only operates a single brand. Nowadays, when talking about car dealers, most people refer to the 4S store business model.

Is the car dealership industry really heading towards a dead end? In fact, this is not the case.

Although in previous years many manufacturers began to try direct sales and mixed operations, reducing the dealer network, the situation has recently reversed. Due to the heavy pressure of costs and operations, a new round of channel changes has begun, and many car brands that leaned towards direct sales models are once again embracing dealers.

"Professionals do professional things, this is common sense," said Zhang Wenwu, Executive President and Secretary-General of Hunan Chamber of Commerce in Tianjin, and Chairman of Tianjin Jinhuitian Investment Group Co., Ltd. Selling cars is a professional matter that requires a huge amount of capital and meticulous service capabilities. For new brands, it is indeed possible to operate directly in the early stage to build the brand and set benchmarks, but as sales increase, this is difficult to sustain. Because the various costs of dispatching and managing employees in different places are too high.

After all, dealers have long-term cultivation in the local market - with better locations, more professional talent teams, and lower operating costs. The most important point in Zhang Wenwu's view is that compared to pure direct sales, dealers are more likely to regard 4S stores as their own business, rather than just dispatched managers. Different mindsets lead to different levels of investment.

In the past few years, the profit model of car dealers has undergone significant changes. Except for a few ultra-luxury brands, the revenue of dealers relies heavily on after-sales and insurance and other derivative services. However, unlike traditional fuel vehicles, the frequency of maintenance and repair of new energy vehicles has significantly decreased, and some car companies continue to develop their own insurance channels, leading to a continuous thinning of car dealer profits.The proliferation of electric trams has caught many traditional fuel car dealers off guard, but it has also brought opportunities to those with keen senses.

Fan Youli, the vice chairman of the National Alliance of Car Dealers, once stated that in retrospect, from 2017 to 2022, dealers who focused on new energy and did a good job in preparation had relatively better days. However, those who did not keep up with new energy in these five years would find that there are basically no seats in the race.

At present, the pressure of price wars has also been transmitted to these pioneers. Recently, the electric vehicle dealer Aochuang Holdings submitted an IPO application to the U.S. Securities and Exchange Commission. The prospectus shows that in the first half of the 2024 fiscal year ending on March 31, 2024, its revenue was $33.1897 million, a year-on-year decline of 4%; net profit fell from $71,300 in the same period of the previous year to -$399,400, a year-on-year decline of 660%.

The company stated that in 2023, the market was oversupplied with electric vehicles, causing significant downward pressure on the retail price of electric vehicles. Competitors initiated price wars to compete for market share, causing Aochuang Holdings to lose orders and have to reduce retail prices (including service prices) to compete, leading to further revenue decline.

"In my opinion, the business volume in China will continue to grow because this market is still growing, and we still have a considerable development space," said Ni Kailing, the CEO of Baoai Jie (China) and the head of the China region of the largest European car dealer, who is very confident about the resilience of China's economy and the Chinese car consumer market. She predicted that consumer confidence will gradually recover from 2026, and the car consumer market will eventually return to stability.

In the past year, when researching the survival status of Chinese car dealers, we found that the core of car dealers is not only selling cars but also providing considerate services based on customer insights. Therefore, focusing on the familiar luxury customer base and exploring various consumer needs, listening to, understanding, and satisfying them, may be a more long-term transformation and development direction. Of course, this is not just a dealer's store but more of a comprehensive change in service providers.