At the beginning of this year, the Chinese car market initiated a price war, which lasted longer and involved more models compared to the previous year. The China Automobile Dealers Association revealed that they have received a large number of feedback from member enterprises, indicating that the prolonged price war and other factors have brought about drastic changes in the car market, leading car dealers into a quagmire, facing a severe liquidity problem. Currently, the existing liquidity for car dealers has been compressed to the limit.
According to a report by the Beijing Business Daily on December 23rd, Li Yanwei, a member of the Expert Committee of the China Automobile Dealers Association (referred to as “CADAA”), stated that based on the market discounts and average transaction prices of new cars in January last year, the overall losses in the car retail market in the first 11 months of this year have reached 177.6 billion RMB.
The pressure on car dealers is directly reflected in the data. Monitoring data released by CADAA shows that as of August this year, the highest level of “turnover-to-sales” inversion for car dealers has reached -22.8%. Lang Xuehong, the Deputy Secretary-General of CADAA, predicts that the number of 4S car dealerships withdrawing from the market this year will reach 4,000.
The continuous price war in the car market has led to a continuous reduction in the sales volume of joint venture brands of gasoline-powered cars. Data shows that in the first 11 months of this year, the sales volume of gasoline-powered cars totaled 10.35 million, a year-on-year decrease of 12.7%, with a corresponding 12.1% decrease in market share. Statistics show that in the first 11 months of this year, sales of Japanese brands decreased by 490,000 vehicles year-on-year, American brands decreased by 390,000 vehicles, and German brands decreased by 320,000 vehicles.
Li Yanwei, a member of CADAA, believes that consumers have advanced their consumption, which will affect the volume of new car orders in January next year. In the early part of next year, new car discounts may increase, reigniting the price war in the car market, with the majority of the damaged sales expected to be from domestically and joint venture car companies producing mid-range and low-priced models.
It has been reported that with the government’s subsidies for trading in old cars for new ones, the car market price war is gradually easing this year.
However, according to a recent report by the China Business Times, from 2014 to 2019, there were once over 60 new forces in the market, but now only 8 remain, with 2 of them nearly disappearing from the market, and 1 deeply trapped in unpaid wages and losses. These suspended new forces in the car manufacturing industry have left behind bad debts totaling over a trillion RMB, with a total financing amount of 107 billion RMB. Both NIO, which is still active, and the bankrupt Evergrande Auto, have accumulated losses exceeding a trillion RMB.