Joint venture car companies withdraw from the price war: it's not that they can't afford it, but it's not worth it

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2024-07-31 22:28Posted in Sichuan Automobile Creator

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01 Joint venture car companies have withdrawn from the price war, because the continuous price reduction has led to serious losses for dealers, which affects the long-term development of enterprises.

02However, the price war is not a long-term solution, and channel health and product service quality are the key to the healthy development of the automotive industry.

03 Executives of joint venture car companies are more reluctant to see the negative impact of vicious competition among dealers and declining service quality.

04Through the innovation of financial instruments and sales and service models, it is expected to activate consumer demand and achieve a win-win situation for all parties.

The above content is generated by Tencent's hybrid model and is for reference only

Text | Zhao Cheng

Edit | Wang Jingyi

The price war, like the recent hot weather in Beijing, makes people restless, but helpless.

Recently, in a Guangqi Honda 4S located in the Beijing Economic and Technological Development Zone, a salesperson stood at the door fanning a fan, and when he saw a customer entering the store, he did not take the initiative to come forward to receive him, and still waved the fan in his hand to cool down.

When we took the initiative to ask the sales staff and learned that the current store in the sale of models preferential margin, for example, the new generation of Accord, the new car starting guide price of 179,800 yuan, if the full purchase of the car discount of 40,000 yuan, if the installment can be discounted 70,000 yuan, the interest is 10 points, one year after the loan is allowed to be paid off in full.

"This car is the most we lose, each sold nearly 15,000 yuan, the manufacturer only gives us a discount of 35,000 yuan, as for how much discount on this basis, is the dealer's own policy. However, the manufacturer basically does not assess our sales, so it is one that can be sold. At the same time, the sales also said that the manufacturer's price plan is formulated on a monthly basis, and there is a high probability that the terminal price will be corrected in August.

As for the high temperature in the store, the salesperson joked that the air conditioner may have been deliberately broken in order to save costs.

Compared with the "free and easy" of Guangqi Honda dealers, a FAW Toyota dealer not far away seems to be much more optimistic.

Photo by Zhao Cheng of FAW Toyota 4S store

"The Corolla is the most sold model in our store, but if you sell one car, you will lose 10,000 yuan, but an MPV like Grevia is profitable. Taking the four-wheel drive version of the model as an example, its market guide price is 369,800 yuan, and the maximum discount is 70,000 yuan, because the rebate given by the manufacturer is relatively high, even if the car is discounted by 80,000 yuan, we are also making money. At the same time, the sales said that with the arrival of the new generation Prado in August, the model is expected to be the next "volume and profit" model. "The unit price is relatively high, so the manufacturer gives our dealers a higher rebate, and our store has received deposits from dozens of users."

As for the price war, this sales believe that it will continue. "The sales of electric vehicles led by BYD are very large, and they are always cutting prices, which will quickly encroach on the market share of fuel vehicles, and Beijing has recently added 20,000 new energy vehicles, so for FAW Toyota, a brand that mainly sells fuel vehicles, can only carry out the price war to the end."

In fact, this view is highly consistent with the attitude of FAW Toyota's executives.

Dong Xiuhui, Secretary of the Party Committee and General Manager of FAW Toyota Motor Sales Co., Ltd., recently publicly stated that the basic direction of FAW Toyota is to maintain the scale, and then to maintain the stable income of the dealership, which are two prerequisites.

"I think the price war will continue in the second half of the year, but the intensity may decrease, because many companies can't move, of course we don't want to fight a price war, but we hope to be able to have a certain competitiveness in the market."

01 I can't afford to lose, it's time for the price war to stop

After BMW fired the first shot of the "anti-price war", a number of joint venture car companies have followed suit. First-tier luxury brands, including Mercedes-Benz and Audi, have ended the strategy of "cutting prices to protect share". In addition, Volkswagen, Toyota, Honda, Volvo and other brands have decided to adjust their terminal policies from July, reduce terminal discounts, or not further reduce prices.

"Only the RS model (performance model) in our store is not sold at a loss, and the other models are basically sold at a loss. A6L has now called back 20,000 yuan, and Q5L has also called back more than 10,000 yuan. A car Audi 4S store sales in Beijing said: "The current terminal price compared with the end of last year, the preferential range is still relatively large, the average is about 40,000 yuan higher, now the store is basically a price for two days, the probability will be back to the level at the end of last year." ”

Coincidentally, the sales of a BMW 4S store in Beijing also told us that the terminal price correction will be in line with the end of last year.

"At present, the price of the models on sale in the store is generally about 10,000 yuan, and it will continue to be the same as the end of last year." Talking about BMW's first exit from the price war, the sales person said that the biggest change he felt was that the department leaders stopped cursing during meetings.

"The manufacturer has lowered the sales task of our distributors by 30%, and we can easily meet the sales target. The price of our store from the manufacturer is 9% off, before that, the manufacturer did not intervene too much in the terminal price system to the dealer, after the price war started, the wait-and-see mood of consumers was heavier, and did not play an effective role in driving the increase in sales. Now that the price war has stopped, although the flow of people is a little less than before, in terms of sales, there is not much difference. ”

BMW's choice to take the lead in withdrawing from the price war and making price corrections for its products will inevitably cause it to lose some market share, which can be found in Mercedes-Benz 4S stores.

Photo by Zhao Cheng of Beijing Mercedes-Benz 4S store

"It's noon now, many people are going to eat, if it's the morning or afternoon to the store, our sales here are basically not enough, compared with before, the flow of people these days is indeed a little abnormal, we understand that there are indeed many customers who come to our Mercedes-Benz store after seeing BMW." A Mercedes-Benz 4S store in Beijing said in sales.

However, foot traffic has not yet fully translated into sales. "BMW has just announced its withdrawal from the price war, and many customers come to our store to compare prices, and we are also recovering prices, and the conversion will be more obvious in late August." The above-mentioned sales said, it is really a loss, if the price war continues, dealers will have to withdraw from the network on a large scale.

02 Exchanging price for quantity has little effect

According to the latest "2024 China Auto Dealer Development Report" released by the China Automobile Dealers Association, under the impact of the price war, the increase in sales of the top 100 dealers has not led to the expansion of revenue scale, and the overall revenue in 2023 will be 1,931.7 billion yuan, which is basically the same as in 2022. In terms of profitability, the gross profit of new and used cars has declined to varying degrees.

In other words, a slight increase in revenue and a sharp decline in profits have become a common situation faced by major auto dealers.

This has also been confirmed by second-tier luxury brand dealers. "At present, our store's XT6 discount is 150,000 yuan, XT5 discount is 145,000 yuan, and when this batch of cars is sold out, the price of the next batch of cars will be fine-tuned, but it should not exceed 5,000 yuan." Sales of a Cadillac 4S store in Beijing said: "Many brands have withdrawn from the price war because the sales volume has not increased significantly, but the price reduction measures and effects of our store are quite obvious, as long as the price can be discounted to a certain extent, the sales volume is still good, the scale of our store is relatively small, and the average monthly sales can sell more than 30 cars." ”

However, according to third-party data, Cadillac sold a total of 43,804 vehicles in the first half of this year, a year-on-year decrease of 73.2%; Among them, the CT5 and XT5 models are responsible for sales in the sedan and SUV segments, with cumulative sales of 28,559 units and 5,844 units from January to June, respectively, a year-on-year decrease of 24.4% and 13.5%, respectively.

It's not just Cadillac that has traded price for volume with little effect. In the first half of the year, BMW delivered a total of 1,096,500 vehicles worldwide, a year-on-year increase of 2.3%. However, in the Chinese market, sales in the first half of the year fell by 4.2% y/y to 375,900 units, while Audi's cumulative sales in China in the first half of the year were 292,000 units, a year-on-year decline.

Photo by Zhao Cheng of FAW Audi 4S store

At the same time that sales have been blocked, the company's profits have also suffered. In the first quarter of this year, the BMW Group's net profit was 2.951 billion euros, a year-on-year decrease of 19.4%; Mercedes-Benz's net profit in the first quarter was 3.025 billion euros, down 24.6% year-on-year; Audi's profit before tax in the first quarter was 981 million euros, down 58.4 percent year-on-year.

Some car executives said that the "price war" of car companies allows consumers to buy cheaper cars, or buy more high-end brand models with the same budget. However, in order to seize market share, some car companies have reached the point where they don't even care about costs, which not only damages the long-term development of enterprises, but also affects the healthy development of the entire industry.

According to the survey of China's auto dealer inventory warning index, in June, the inventory warning index of China's auto dealers was 62.3%, and the inventory warning index was above the boom and wither line, and the inventory pressure of dealers was still large. In terms of brand types, the current market pressure of luxury and imported brands is prominent, with the dealer inventory warning index at 66.4%, mainstream joint venture brands at 60.8%, and independent brands at 61.5%.

At the same time, the GP1 (gross profit margin) of luxury brands fell from -22.0% to -24.2%, which, combined with the performance of the inventory factor, shows the fierce competition among dealers in the luxury car market. Direct bidding between luxury brands and joint venture brands for mid-to-high-end products, coupled with the impact of high-end new energy products, further reduces the profitability of the luxury brand market.

Photo by Zhao Cheng of BMW Brilliance 4S store

According to Gao Xiang, President and CEO of BMW Group Greater China and Director of BMW (China) Investment Co., Ltd., the key to success in the highly competitive Chinese market is to stabilize the dealer network and ensure that partners have a long-term healthy and sustainable state.

"With a very reasonable sales target and sales rhythm, it is our goal to let dealers develop healthily and sustainably. BMW complies with the relevant provisions of the anti-monopoly law, and the final market terminal price is made by the dealer independently, but from the dealer's point of view, they will have a very clear business consideration, and will also make a judgment based on the actual financial situation, and finally make a good balance in terms of sales quality and price strategy. Gao Xiang said.

03 The price war has been fought for nearly 10 years

The essence of price war is a competitive strategy between enterprises to compete for market share by reducing commodity prices, which usually occurs in industries with market saturation and serious product homogeneity.

From 2000 to 2010, there was basically no price war, and car companies would only carry out normal promotions in the Golden Nine and Silver Ten, because that period was the golden decade of China's automobile popularization.

As China's auto market becomes more and more mature, from 2010 to 2015, although it is also the world of joint venture cars, consumers have begun to make more detailed comparisons in terms of products, which has led to a further increase in the price of terminal sales.

After 2015, the SUV market has risen, and joint venture car companies have fought on this track, and brands with high premiums have also been sold at a higher price, such as the Lexus NX series and RX series; and GAC Toyota Highlander. However, the rapid development of domestic brands, GAC Trumpchi GS4 and Great Wall Haval H6 and other models are menacing, forcing joint venture brands to reduce prices, or even simple configuration, such as many joint venture brand SUVs have launched two-wheel drive models and A-class models, in order to further reduce the price threshold of products.

China's auto market has shifted from an incremental market to a stock market, and the price war between joint venture automakers began nearly 10 years ago. The second-tier luxury joint venture brands sought sales growth through a "price war", which not only led the overall sales of the luxury car market that year, reshaped the pattern of the market segment, but also made the trend of 'popularization' of luxury brands more and more obvious.

Source: IC

However, the price war is out of control, and the war not only spreads to the entire joint venture market, but also the timeline is getting longer and longer, causing the brand premium of the joint venture car company to suffer, the price of new cars to invert, the price system of used cars to collapse, and the sales volume to collapse. There is no winner in this price war, and both car companies and dealers are suffering.

Liu Yingzi, president of the Automobile Dealers Chamber of Commerce of the All-China Federation of Industry and Commerce, publicly said, "The market competition with price as the main means is still continuing, and the excessive involution of the industry is still intensifying. ”

04 It's not that I can't afford it, but it's not worth it

The automotive industry chain includes all links from raw materials to the aftermarket, involving multiple cost factors, if one of the chains breaks, it will inevitably bring serious adverse consequences, so a deep price war is not a long-term solution. The terminal price correction is conducive to the healthy development of the automotive industry and the industrial chain, after all, the competition of automobiles is the comprehensive strength of technology, service and product quality, rather than simple price factors.

Market share is a pure zero-sum game, and every percentage point increase or decrease means that it is a tiger's mouth.

Some people from joint venture car companies said that the price war is like playing cards, and if someone plays the cards, you can only follow, and if you don't follow, you will be out.

"Due to the different scale of each company, its own situation is different, especially joint ventures, many suppliers and core technologies are mastered by foreign parties, they do not want the price war to continue, and feel that it is not worth it to further squeeze the cost of the supply chain." The above-mentioned business people said.

In fact, what executives are more reluctant to see than the short-term profit reduction of auto brands is the direct negative impact of vicious competition among dealers, declining service quality, and price reductions to promote brand value.

Source: IC

Therefore, channel health is the focus of the health of the whole system. Only by reducing the burden on dealers, adjusting their inventory levels to a reasonable range, and ensuring the cash flow of dealerships can we gradually reverse the negative impact of the price war. It is not difficult to understand why joint venture car companies have begun to withdraw from the price war, even at the cost of losing part of their market share.

In an increasingly volatile environment, price wars are tantamount to quenching thirst, and China's auto market is more urgent than ever for benign marketing model innovation.

Shen Jinjun, president of the China Automobile Dealers Association, said that in the long run, through the innovation and support of financial tools, the customer-centered sales and service model will truly activate consumer demand, and ultimately promote a win-win situation for users, brands, dealers and the second-hand car market.

Building a car is not a 100-meter race, but a marathon. It does not rely on short-term and fast, but on accumulation, and it is in accordance with the laws of the market. In this way, we can take one step at a time and move forward steadily, which in itself is the basic concept of long-termism.

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