Auto Aftermarket Marathon: Beijing Car Club, Tmall Car Race, Tuhu Car Race

The illustrations are from Canva Paintable

With the atmosphere of the Spring Festival and the gradual recovery of chip supply, the automobile market began to show a scene of production and sales. Under the continuous heat of the automobile market, the auto aftermarket has also become a fragrant feast for various capital competitions, and Tuhu Car has taken the lead in launching an IPO, which has added a fire to the fiery auto aftermarket.

However, in this track that looks "full of spring", there are 4S shops chasing and blocking in the front, and there are street repair shops scattered and divided, and the highly fragmented automotive after-sales service market seems to be far less beautiful than imagined. So, what is the reason why capital has taken a fancy to the automotive aftermarket?

Behind the favor of capital

From the perspective of the industry, the automotive aftermarket can continue to break out and has been favored by external capital, which is related to many factors.

First, the domestic passenger car market has huge room for growth, and the prospects of the domestic automotive after-sales service market are also worth looking forward to. According to relevant data, by the end of 2021, China's passenger car ownership will reach 262 million, becoming the world's largest automobile market. However, in 2020, the average passenger car ownership in Chinese is only 171 thousand people, which is far lower than the average in Europe and the United States. From the perspective of sales volume, the Chinese market has ranked first in the world's new car sales for 10 consecutive years, and there is still a lot of room for growth in the future. Correspondingly, the automotive after-sales service market has maintained an annualized growth rate of 12% in the past four years, and the market size has exceeded the trillion scale in 2020, and its scale is expected to be further improved in the future with the growth of automobile sales.

Second, as the age of passenger cars is extended, the demand for aftermarket services is growing year by year. In general, when the age of passenger cars crosses the 6-year tipping point, car service spending begins to increase significantly. The data shows that the average age of passenger cars in China in 2020 is 5.6 years, and it is expected to reach 7.6 years by 2025. This means that the automotive aftermarket will usher in an inflection point in the next 4 years.

Third, the special national conditions of China's auto market determine that the domestic automotive after-sales service market has the "just need" consumption attribute. Most of the mainland passenger cars are concentrated in the middle of the city, coupled with the limited urban garage, resulting in the "DIY model" (self-service) in the car service is difficult to carry out, while the "DIFM model" (serving me) is sought after by users, and users are willing to pay for the after-car service.

Although whether it is from the perspective of business model, growth space or future expectations, the automotive aftermarket is a rare potential track. However, from the current status quo of the industry, this market is still in a state of "two ends are not strong".

On the one hand, there are 4S stores with natural customer groups and technical advantages, occupying the head space of the automotive after-sales service market, but their services and prices are often criticized; on the other hand, they are scattered in various cities on the street, although they can solve some daily maintenance problems, but they are not satisfactory in terms of service quality, professionalism, and compatibility. Because neither end of the market is strong enough, a new Internet model distributed in the "middle zone" has begun to emerge.

The unavoidable pattern of burning money

Although the industry has given birth to a new Internet model, the loss problem that has plagued enterprises for a long time has not been well solved after the Internet has entered, but has intensified.

For example, Tuhu Car, which is famous for its Internet car service, has taken the industry's top position in expanding its scale with the "subsidy" model of the Internet, but its losses for many years have not been well improved. According to public financial report data, in 2019, 2020 and the first three quarters of 2021, the company's revenue was 7.040 billion yuan, 8.753 billion yuan and 8.442 billion yuan, and the losses during the period were 3.428 billion yuan, 3.928 billion yuan and 4.435 billion yuan, respectively. It is not difficult to see from the data that while The revenue of Tuhu Car continues to expand, the loss is also continuing to expand.

As one of the platforms that rose up in the early years of the Internet outlet of the automotive aftermarket, Tuhu has not yet got rid of the dilemma of loss, and how deep the "water" of the automotive aftermarket is can be seen.

On the one hand, China's automotive industry has many brands and models, resulting in a highly fragmented auto parts market. According to incomplete statistics, there are as many as 3,000 kinds of models that often run on the road in China, most of the accessories of each model are not universal, and there are millions of SKUs (single products), which are hugely different from the European, American, Japanese and Korean markets, and there is basically no possibility of copying.

On the other hand, although the scale of the automotive aftermarket is at the trillion level, its low-frequency consumption attributes make the user's stickiness to the platform extremely low, and the cost of corporate customer acquisition is high. Generally speaking, the annual maintenance of the normal use of the new car is only 2-4 times, and the customer's contribution value to a single brand or a single platform is extremely low; at the same time, because the car maintenance belongs to the field of high professional technology, its service process is highly dependent on actual operating experience, and its requirements for mature skilled workers are extremely high, and the experience of mature skilled workers needs time to accumulate, which makes it difficult to continue the expansion of relying solely on the subsidy model.

It is precisely because of this that the first generation of Internet players who entered the automotive aftermarket have successively entered the game by means of door car washing, door-to-door maintenance, car group buying, etc., and finally none of them have been spared in failure. Although Tuhu Car has broken through the siege with the platform model, it still has not been able to get rid of the dilemma of the platform model, and the problem of profitability is still prominent.

The platform model is not the antidote

Due to the delay in making a profit, Tuhu Yangche had to choose to accelerate its IPO after continuously expanding its scale to solve the cash flow problems caused by the continuous losses. So, the platform model that has always been regarded as an "industry model", why is it difficult to solve the problem of profitability in the industry?

On the one hand, the role of "middleman" in Tuhu's own car makes it difficult to have a higher than the average gross profit of the industry. As the first platform to start with tires and chassis spare parts, these two businesses in the revenue of Tuhu Car so far still account for a large proportion of its revenue. According to the prospectus data, in the first three quarters of 2020 and 2021, the tire and chassis spare parts business accounted for 48% and 43.6% of its revenue, respectively, while the maintenance business revenue accounted for 29.9% and 32.7% respectively.

It can be seen that the former is still the "big head" of its revenue, and as a platform party that connects suppliers at one end and connects consumers at the other end, If Tuhu Yangche wants to improve profits, it needs to reduce the supplier's supply price, and it must also attract users to spend on the platform at the lowest possible price, which makes it difficult to have a higher gross profit margin. According to the data, Tuhoo's gross profit margin in 2019, 2020 and the first three quarters of 2021 was 7.43%, 12.34% and 15.55%, respectively. Although its gross profit margin has improved, it is still in a relatively low position compared to the industry.

On the other hand, in order to build a brand and attract C-end customers and franchisees, Tuhu has to continue to increase marketing investment. In the case of their own gross profit margins, these marketing investments will inevitably swallow up part of their profit margins. According to the prospectus, Tuhu Yangche's marketing expenses in 2019 were 1.041 billion yuan and in 2020 were 1.263 billion yuan, an increase of 21.3% year-on-year. Marketing expenses accounted for 14.7%, 14.4% and 14.5% of total revenue in the same period.

In short, on the one hand, the meager gross profit on the other side is the increasing marketing investment, which has exacerbated the loss of Tuhu Car, and with the expansion of the scale, this loss is still invisibly magnified. It can be seen that the current platform model is not a good medicine for the industry.

Successors are endless

Although the platform model played by Tuhu owners has not solved the problem of profitability, in the face of the promising automotive aftermarket, Internet platform players such as JD.com and Ali still can't wait to participate in it.

It is reported that at present, Ali's Tmall car franchisees have exceeded 24,000 nationwide franchisees, and more than 1,500 stores have been opened; more than 1,000 Beijing Auto Club under Jingdong have also signed more than 1,000 franchise stores. Although the giants are late, because they have certain advantages in financial strength and C-end popularity, the overall development speed is very fast. With the gradual completion of the early integration of resources, tmall car and Beijing car club have opened a new round of service upgrades and market expansion in recent years, but there is a clear difference between the two in terms of specific practice.

1. Tmall car power sinking and smart stores

In recent years, with the increasing number of car maintenance stores in county cities, Tmall Car has gradually placed its power direction in the sinking market, trying to combine its own advantages to differentiate the positioning and seize the county automotive aftermarket that is still in the blue ocean. According to public data, Tmall car has been deployed in the sinking markets such as Bazhou, Huai'an and Yiwu, and a joint operation center was established last year to promote the sinking of its car business.

In addition, smart stores are also the key direction of Tmall's recent efforts. Most of the parts repair in traditional auto repair stores are not very transparent, and even the phenomenon of customer quotation has appeared. In order to solve this problem, Tmall Car has realized the transparency and checkability of all store accessories prices through store intelligence, and at the same time promoted the standardization and digitization of stores through intelligent car services.

2. Jingche will strengthen self-operation and service landing

Compared with Tmall Car, Jingche will focus more on strengthening self-operation and promoting the landing of service models. Similar to the new scenarios in which many Internet platforms enter the market, JD.com is more interested in the expansion of scale and the growth of transaction volume in the early process of entering the automotive aftermarket. Under the guidance of this concept, its franchise expansion has been very fast, and the transaction volume has also been greatly increased, but the drawbacks are also increasingly apparent.

On the one hand, the volume standards of franchise stores are different, and it is difficult to establish a platform reputation. For example, after the street store "transformed" into a Jingdong brand store, the service capacity did not increase but the price soared, resulting in the platform image being pulled down; on the other hand, the pure transaction model made customer retention unsustainable. Due to the low-frequency consumption attributes of the automotive aftermarket itself, the cost of customer acquisition on platforms and stores is extremely high, and this problem is becoming more and more obvious in the pure transaction mode.

In order to strengthen services to make up for shortcomings and improve the image of the platform, the Beijing Automobile Association will raise the franchise fee and strengthen the franchise management on the one hand, and on the other hand, strengthen the connection between the Beijing Automobile Association and the original business of the Jingdong Department, and increase the proportion of self-operation. For example, by opening up the Jingdong APP and related Jingdong plus members, we will enhance the stickiness of users to the platform, and at the same time promote the landing of stores that "meet the Jingdong standards", so as to promote the self-operation of stores.

At present, whether it is tmall car breeding that takes a differentiated route or Beijing Auto Association that strengthens self-operation, it is trying to promote the landing of the platform model in its own way.

Write to the end

It is worth mentioning that after several years of large-scale expansion and making up for shortcomings and weaknesses, the Internet players who entered after the Beijing Automobile Association and Tmall Car, although there is still a certain gap with Tuhu Car, but the construction of core capabilities has been almost the same, which also means that after the listing of Tuhu Car, the competition between giants will be further intensified.

Back to the industry itself, Internet platforms such as Beijing Auto Club, Tmall Car, and Tuhu Car, no matter who wins the marathon war, will inevitably need to bear layers of pressure from suppliers, consumers, capital and other stakeholders in the process. For participants, how to overcome industry fragmentation, promote industrial concentration, and how to balance the relationship between commercial returns and asset-heavy operations will still be a test question in front of all participants, waiting for them to answer.

Text/Financial Reference, ID: Jrwaican