[Abstract] A senior industry insider believes that currently only one-third of car dealers can make a profit. Nearly 40% are already in a state of loss, and 10,000 4S stores may be out of the market in the next five years.

Yue Xing Lao Han, special author of Tencent Finance's “Insights” (senior auto media personality)

No one expected that in 2019, the first one to “make headlines” in the automotive industry was Auto Home, a vertical automobile website. Party B has always been boycotted by major financiers.

The incident stemmed from a confidential internal corporate document. On January 9, Zhongsheng Group, the second largest auto dealer in China, issued the “Notice Concerning Suspension of Auto Home Member Cooperation and Fee Payment”. The general content is as follows: stop cooperation with Auto Home, will not buy new membership and advertising services, and will stop payments for those who have signed up and not paid, and the process is being stopped immediately.

The dominoes instantly collapsed. Leading dealer groups such as Yuntong, Pangda, and Yongda all immediately followed suit, and Auto Home seemed to be in an unfavorable situation where it was embattled from all sides. As a result, the stock price continued to fall. The real-time stock price at 14:00 on January 15 had already fallen below 68 yuan, down nearly 14%.

In fact, car dealers are very dependent on sales leads from vertical websites, so even though prices are rising year by year, dealers have accepted it. After all, they are still able to get support from manufacturers, but there is such a big rebound this year, I don't believe Auto Home expected it. What is the reason?

The last straw

“If the market is good, your price increase is understandable, but if the market conditions are so bad, you can't talk about price increases.” On January 13, Pang Qinghua, chairman of Pangda Group, clearly expressed support for the practices of his peers, and soon introduced policies similar to those of Zhongsheng.

At the end of the day, the automobile market is still declining, and dealers have no money to make any money. Everyone is thinking about how to reduce costs. At this point, Auto Home announced a price increase, which is undoubtedly the last straw that overwhelms car dealers. “A vertical website that started as a car dealer actually wanted to rely on monopoly to erode when it became prosperous.” This is a quote posted by Li Hong, the president of Express Auto Group, on his personal Weibo. Obviously, he thinks Auto House's approach is a bit like “robbing in a fire”; it's not authentic.

Of course, shopping malls only talk about interests, not feelings. This is an iron rule. However, the difficulties faced by dealers are real. According to the latest data released by the China Automobile Association, in 2018, passenger car production and sales in China reached 23.529 million units and 23.71 million units, respectively, down 5.2% and 4.1% from the same period last year. The total annual automobile sales volume was 28.08 million units, the first negative increase since 1990.

In this context, the days of car dealers are unlikely to be better. According to data from the China Automobile Dealers Association, in December 2018, the inventory warning index of domestic automobile dealers was 66.1%, up 18.33% from the previous year. This is the 12th month in a row that it has been above the warning line.

A senior industry insider believes that currently only one-third of car dealers can make a profit. Nearly 40% are already in a state of loss, and 10,000 4S stores may be out of the market in the next five years. In this case, any increase in costs is fatal.

The role of the internet

As Li Hong, CEO of Yuntong Automobile Group, said, the automobile vertical website was actually developed by car dealers. During the golden period of rapid development of the automobile industry, dealers were also rich in wealth. At that time, traditional media, including newspapers, radio, and television, were in a strong position. The annual membership of the Auto Vertical website was only tens of thousands of yuan, which is equivalent to the price of a quarter of a day of a powerful newspaper.

As market competition becomes more intense and distributors' profits become less and less, the prices of traditional media are no longer affordable for dealers. Coupled with the rise of mobile internet, a large audience has begun to abandon traditional media, and only then have vertical automobile websites gradually become mainstream. They no longer use frontline salesmen knocking door-to-door to sell members, but at the same time, prices continue to rise, starting to become more and more powerful.

According to public information, in 2019, Autohome launched four versions for dealers: basic, luxurious, smart, and smart technology. In Shanghai, the smart version costs 320,000 yuan a year, and the smart technology version costs 510,000 yuan a year, which is already very expensive. You need to know that many 4S stores have a profit of only a few hundred thousand a year, and the ones that can make a profit now are stores that operate relatively well.

A car dealer said that after years of accumulation, the vast majority of 4S stores now buy members of vertical automobile websites, so there are few opportunities to buy the lower version, while the price of the higher version continues to rise, making it difficult to bear in the current market environment. Also, after the price increase, sales leads have not changed much compared to before, and the quality of leads is now also on a downward trend.

The Autohome side does not agree with this. They believe that the 20% increase in Autohome membership prices in 2019 is a reasonable increase. Because by improving the quality of operations, Auto Home can increase traffic and provide more sales leads, so there is no increase in the price of a single lead. Allegedly, the total number of Auto Home leads is expected to increase by 10% in 2019, and the unit price converted to leads will only increase by 9%. Compared with the overall 6% inflation in the market and a 15% increase in market traffic, a 20% increase in membership prices has been achieved.

Based on this, Autohome believes that dealers “should not only focus on price, but also on value.” However, the dealers did not agree with this, believing that it was only the data unilaterally provided by Auto Home; it was just the most idealized situation. The value of Auto Home's leads was actually overestimated.

Cooperate or break up

According to information, various dealers and Auto Home have had face-to-face communication about this, but it is just that both parties have each expressed their own demands; Auto House has no intention of cutting prices. Furthermore, Auto Home said that since 2019, more than 23,000 domestic dealers have signed cooperation agreements with them, and some of the stores included in this, cooperation with Zhongsheng is also normal.

According to convention, the 2019 membership contract will be signed before the end of 2018, and payments have already been made as normal. Moreover, the marketing expenses of dealers are supported by many manufacturers, so they do not have complete autonomy in procurement. Under such circumstances, Auto Home does take the initiative. However, if there is a stalemate, it may not be possible to sign up in 2020. In addition to membership services, daily advertising services are also major, so this part of the dealers can be stopped.

You need to know that several of the dealers involved this time are all very powerful dealer groups in the industry. For example, Zhongsheng, Huangda, and Yongda ranked second, fourth, and fifth in the national rankings, respectively, and their 4S stores all reached thousands. This influence is still very large, so it is not difficult to understand the collapse in Auto Home's stock price.

Although dealers just need traffic, new media are developing rapidly now, and Auto Home is far from reaching a monopoly. The scariest thing is that if the dealers' actions cause manufacturers to change the way they subsidize marketing expenses and directly give dealers money to let them decide the direction of marketing, then the impact on Auto Home will be even more fatal. After all, in a bad market situation, manufacturers' marketing pre-marketing is a common method.

In stark contrast, while car dealers' business is difficult to do, Auto Home's performance is outstanding. According to Auto Home's report for the third quarter of 2018, net revenue for the quarter was RMB 1,888.4 million, and net profit attributable to Auto Home was RMB 737.4 million, an increase of 55% over the previous year.

However, the healthy state of an industry is a “win-win”. The best outcome should be for everyone to make concessions. Auto Home refers to the current state of the market and sets a price that everyone can accept. If Auto Home disregards the current state of dealers' operations, it is likely that they will be jointly isolated by angry dealers. As Luo Lei of the China Automobile Dealers Association said, “Although Auto Home is now the largest platform for domestic car traffic leads, let's not forget that it is not the only one.”