Only 12% of mass-market brand dealers in China's car market made money in the first half of this year

By Jeff Lee 2022-11-14

China's car market has been seen as a leading indicator in the era of EVs since last year. Other markets around the world can look to the Chinese market ecosystem to plan early for the imminent changes. This year, many of the international joint-venture mass-market brands in China have experienced compelling pressure to meet market share targets and tackle dealership losses. The joint-venture EV models are not competitive enough, a problem that has practically given away almost one third of the market to China self-owned brands and Tesla (which is a sole proprietor in China). This phenomenon will intensify in the coming year and gradually spread to the major regions where independent Chinese brands are exported (e.g., Europe and Southeast Asia).

    According to a recent report from CADA (China Automobile Dealers Association), only 27% of dealers in China, the world's largest car market and EV market, made money in the first half of this year, halved from 54% last year. Specifically the mass-market brands, only saw 12% of their dealerships profitable in the first half of this year while EV segment, independent Chinese brands, and premium brands continued to grow. Mass-market gasoline car brands were expected to bear the brunt of market share erosion when the global car market is transforming into the era of EVs. What was unexpected is that the wave of subversion would have hit so soon and with such great impact in China's car market, the global leading indicator. Moreover, the dealers of mass-market brands gave lower ratings than those of premium brands and independent brands in overall dealer satisfaction with the carmakers. Although China car market environment is quite different from other countries, the above phenomena definitively serve as a significant warning signal to traditional carmakers and dealer systems around the world...

  • Mass-market brands that are still primarily selling gasoline cars without being clearly positioned as premium brands will likely continue to decline and face a tough battle for survival if they fail to launch EV models with full product competitiveness by 2025.
  • The sales strategy of traditional carmakers after the development of new EVs is either to drastically reduce promo chips or to simply set up new direct sales channels. This will trigger a fundamental change in the business model of the original dealers. If the dealers do not work on a transformation strategy with the carmakers soon, it will only be a matter of time before they downsize or switch to used car business.
  • During the critical transformation period in the next five years, traditional carmakers should be conservative especially in estimation and planning production and sales for gasoline models. Overproduction, leading to dealer stockpiles, always harbingers the collapse of a brand's operations. Of course, being "conservative" in estimation is easier said than done. It is a painful "wrestling" process in reality. It is hard to get carmakers to admit to dealers that sales will decline, but getting reluctant dealers to agree to fight the surging EV trend without lowering their sales targets means having to endure tremendous pressure of cash flow.

China's car market is expected to witness new energy vehicles (BEVs + PHEVs) accounting for nearly 30% of new vehicles this year, and the global car market will reach the same proportion around 2026. In other words, what is happening to China's car dealerships now will be happening across the globe in four years. In regions with high EV penetration, such as Europe, it will even take less than four years. The authorized car dealers once familiar to the general public will be entering total transformation and restructuring in the coming decade.