Since 2024, news about the bleak situation of car dealers in mainland China has been frequently reported. A long-time car dealer stated that nearly 20,000 dealerships across China are now operating at a loss.
At the beginning of 2024, a dealership group in Guangdong was on the verge of bankruptcy, with more than 80 4S stores under its umbrella being sealed off. Overnight, all the display cars were taken away by the banks. Recently, the largest car dealer in the country, Guanghui, delisted and went out of business.
A report by the influencer “Knowledge of Crisis” on Sohu recently indicated that this industry is facing a certain dilemma. As a veteran car dealer, Wang Xiaoyu (pseudonym) is unsure how long this situation will last, and all he can do for now is to survive.
He stated, “Overall, there are fewer than 30,000 dealerships nationwide, with only 10% currently profitable, 20% breaking even, and the remaining 70% operating at a loss. This means that nearly 20,000 dealerships are currently in the red.”
Wang Xiaoyu explained, “My main focus now is how to sell the cars. For example, if a BMW X5 is priced at 400,000, with a wholesale price of 380,000, giving me a profit of 20,000 per car, right? First, I forgo the profit and sell it at 380,000. If it still doesn’t sell, then there are rebates from the factory. For instance, if I sell over 100 units in a year, the factory gives me 5 million in rebates. I calculate how much per car, provide the rebate to the customer in advance, and then lower the price. If it still doesn’t sell, I offer financial loans by attaching a subsidy of 30,000, with the bank providing a rebate of 10%, that’s 3,000, which I include in the car price.”
Although Wang Xiaoyu acknowledges that this approach only exacerbates the industry’s internal competition and disrupts the market with other dealers claiming that he is selling cheap, “But I have no choice, I have to survive. For example, if I order 100 cars and after stocking for 6 months, they become inventory cars, and if I keep them longer, they will become second-hand cars, which are even less valuable. So, it’s better to start selling within the first three months.”
“Nowadays, it’s not about making high profits anymore; you have to focus on volume. If you can make a profit of two to three thousand per car, sell it first,” said Wang Xiaoyu. He mentioned that the average profit margin for fuel cars is 8%, and for new energy vehicles, it’s a bit higher, around 10%.
According to Wang Xiaoyu, renting a 4S store now costs over one million a year, and the renovation alone amounts to two to three million. With additional expenses such as paving, if dealing with slightly more reputable brands, the cost can go up to over ten million. Initially, the goal was to break even in three years, but now just not losing money is considered good.
As for why car dealers are facing their current situation, Wang Xiaoyu believes there are three main reasons:
First, the current overproduction of cars. During the economic downturn, most people are in a wait-and-see mode when it comes to buying cars. Second, there’s fierce competition in the new energy vehicle market. Third, the traditional 4S dealership system has been around for over thirty years and is somewhat outdated.
In Wang Xiaoyu’s opinion, the root cause of the dealers’ predicament lies with the car manufacturers.
Wang Xiaoyu expressed, “Producing so many cars, but actual sales can’t keep up, what to do with the excess vehicles? They can only be sold at discounted prices. For dealers, it’s like being pressed down layer by layer, the terminal price is set by the manufacturer, and since they can’t be sold, the manufacturers still require you to take inventory, leading to the pressure to stock. So, everyone is stuck in this cycle.”
Most dealers’ practice is to first obtain a bank loan, pay the full vehicle cost by pledging the vehicle qualification certificate, sell the new car within a certain turnover period, and then repay the loan and interest. Selling the cars is crucial to sustaining the entire process and ensuring the circulation continues; thus, car turnover is vital.