New car dealers in China – the world’s largest auto market – were lower for 2011 than 2010, said a new study released today during the Beijing Auto Show. The percentage of profitable dealers decreased to 63%, compared with 81% a year ago. In addition, 20% of dealers report they lost money on their operations – up from 9% in the 2011 study. On average, dealerships in China currently derive 40% of their profits from new-vehicle sales – significantly higher than the amount realized in mature markets where financing, and parts and service sales cover much, if not all of, a dealer’s overhead.
The Chinese auto market only grew by 5% during 2011, by far the lowest growth rate of the 21st century, as the communist central government deliberately slowed the economy in an attempt to fight inflation. Still, 2012 is forecast to result in sales approaching 20 million vehicles – 6 or 7 million more than the projected United States light vehicle market.
“These profit findings are troubling to more than just dealers,” said Charles Mills, vice president, global retail experience at J.D. Power and Associates, the source of the Chinese dealer data. Low dealer profits also hurt customer satisfaction since dealers can’t afford to help out when there is a problem or complaint.
China new-vehicle sales in the first quarter of 2012 increased by just 2% from the same period last year. The sluggish sales growth has affected entry-level vehicle segments more than other segments, despite a continued increase in retail gas prices in China. Fuel prices in China are now more than 20% higher than the average price in the United States.
Typically, buyers trade down to smaller, cheaper and more fuel-efficient vehicles when gas prices rise, but not at the moment in China. Luxury vehicle sales are continuing to surge, driven by wealthy entrepreneurs who are much less price sensitive and much more image conscious. Automaker and dealer incentives in this highly profitable segment have lowered transaction prices, though
The three least expensive vehicle segments – minicars, subcompact and compact- account for almost 60% of Chinese passenger-vehicle sales, according to LMC Automotive’s China analyst, John Zeng.
Sales of entry-level vehicles in the first three months of 2012 declined by 5% from the same period last year. Minicars led the deceleration among these three segments, with a 30% decline in sales versus 2011. Chinese domestic-brand sales have been strongly impacted by this situation, as has their dealerships’ profitability.
Currently, new-vehicle shoppers in China have the world’s widest range of choices, with 94 brands and 476 models from which to choose. That compares with fewer than 40 brands and nearly 100 fewer models available in the U.S. market, the second-largest automotive market in the world in 2011.
LMC Automotive forecasts a nine percent growth in passenger-vehicle sales in 2012, a much lower rate than in previous years when China’s new-vehicle sales surged at double-digit rates. China’s passenger-vehicle market is expected to grow at a compounded annual rate of 12.4 percent during the next four years and will reach an estimated 20.9 million units annually by 2015.
