Recently, 17 OEMs promised to “unify the payment period to 60 days” for suppliers, and did not “leave” downstream dealers.
According to media reports, no less than 7 OEMs have promised to pay sales incentives and rebates to dealers within 60 days, including BMW and BAICNew energy, SAIC-GM, GAC New Energy, GAC Toyota, FAW Audi and Yueda Kia.
With the recent impact of the policy of “suspension of the high-interest and high-return car installment policy of the banking system” and “suspension of car replacement subsidies”, dealers are burdened with heavier pressure on sales targets, inventory, rebate periods and other aspects, and more support measures are urgently needed to change the business situation.
First, the Sichuan Automobile Dealers Association issued the “Proposal on Continuously Improving the Operating Status of Dealers”, and then industry associations in Henan, Guangdong and Shanghai successively issued relevant “Proposals”, calling on OEMs to reduce inventory targets, accelerate rebate settlement and prohibit low-price dumping, etc., to save dealers from the water and fire of funds on the verge of rupture.
However, the early warning of the “Proposal” also shows that although the 60-day period commitment can improve cash flow, it has not solved the problem of pressure storage; At the same time, rebate payments have accelerated, but if they are linked to sales targets, it means that they still need to complete high inventory tasks to be fulfilled, and dealers have not really gotten rid of the existential crisis.
However, with the joint voice of industry associations in many places, this is regarded as the “first shot” of the industry’s self-redemption has been fired, will it allow dealers to really get out of the prisoner’s dilemma of “rolling others to death and starving themselves”, or will it only be reduced to a short respite in a life-and-death race?
01. In the second half of the year, 30% of dealers may be reshuffled, and many associations across the country urgently call for rescue of dealers
This year, the automotive industry seems to be regaining its senses, from “strong supervision of intelligent driving” to “the release of the strictest safety standards for new energy power batteries”, from “official rare action to stop involution competition” to “60-day payment period commitment”, the survival dilemma of enterprises in the entire industrial chain has finally been faced.
After upstream suppliers received the “60-day account period” promise from the OEM, downstream dealers are also waiting for their own “dawn”.
On June 13, the Sichuan Automobile Dealers Association issued the “Proposal on Continuously Improving the Operating Status of Dealers”, which expounded three problems generally reflected by regional dealers, one is that the terminal inventory pressure is too great, and the other is that manufacturers need a clear time limit for the rebate collection period of dealers; Third, the sales target is set too high, leading to intensified sales pressure. In this regard, the association calls for actively improving the operating status of circulation channels.
On June 20, the Henan Automobile Industry Chamber of Commerce issued the “Emergency Initiative on Responding to Sudden Policy Changes to Alleviate the Business Difficulties of Henan Automobile Dealers”, which mentioned that due to the two major policies of “suspension of the banking system’s high-interest and high-return automobile installment policy on June 1” and “suspension of automobile replacement subsidies on June 18”, the passenger flow in the terminal market has plummeted, and the risk of dealers’ capital chain rupture has risen sharply.
On June 24, the Guangdong Automobile Dealers Association issued the “Proposal on Reducing the Pressure on Dealers and Working Together for Development”, calling for the suspension of high interest rates and high returns and the suspension of automobile replacement subsidies in Dongguan, Huizhou, Zhuhai, Foshan, Jieyang and other countries, resulting in a bleak auto market.
The day before, the All-Union Automobile Dealers Chamber of Commerce issued the “Initiative on Calling on Automobile Manufacturers to Optimize the Rebate Policy and Shorten the Rebate Cash Period”, calling on OEMs to set up a clear and clear rebate policy; second, shorten the rebate cashing period; Third, there will no longer be too many restrictions on the cashing of rebates and the use of rebates, so as to jointly solve the problem of “involution” competition in the automobile industry at a deep level.
Subsequently, the Shanghai Automobile Sales Industry Association forwarded the “Proposal” of the All-Union Automobile Dealers Chamber of Commerce, once again emphasizing the clear requirements for various rebate policies and car pick-up bundled rebate policies, etc., to improve the profitability of dealers, and to promote the Shanghai automobile sales industry from “sales competition” to “service competition”.
Judging from the content of the proposals issued by the above-mentioned associations and chambers of commerce, dealers are generally under pressure from high inventories, long rebate settlement cycles, and serious price inversions.
Among them, under the dual influence of high interest rates and high rebates and the suspension of car replacement subsidies, consumers’ willingness to buy cars has declined, and the sales market has been cold, resulting in a surge in dealer inventory pressure.
At the same time, a survey by the Quanlian Automobile Dealers Chamber of Commerce shows that OEMs have a strong connection between inventory and rebate policies, and some brands have been settled for more than 3 months, and even the form of rebates has been restricted, making the dealer’s precarious capital chain worse.
According to industry insiders, under the automobile dealer system, dealers have always been the “reservoir” of car companies, helping car companies bear most of the financial pressure. However, under the continuation of the price war, the purchase and sales prices of dealers are seriously inverted, not only the more they sell, the more they lose; Moreover, it is also necessary to face the task of picking up the car far beyond the affordability, the depth of inventory far exceeds the warning line, and cash flow deficit operation has become the norm.
According to relevant media reports, due to the blind expansion of production and storage by OEMs, the inventory coefficient of some brands exceeds 5, or even as high as 10, and the dealer’s capital chain is under serious pressure, resulting in terminal price distortion. Some dealers falsely reported sales for rebates, further exacerbating financial pressure.
According to Tang Huaguo, chairman of Lantian Group, the largest 4S group in Hunan, the inventory pressure in the domestic auto market is high, and it is expected that one-third of dealers may adjust their operations or withdraw from the network due to financial problems in the second half of the year.
It is not difficult to see that dealers have indeed reached the point of “life and death”, and the “Proposal” of local associations and chambers of commerce is more like a warning, and it is imperative to jump out of the “policy confinement” of OEMs, otherwise the first shot of resistance will soon be dumb, and then it will inevitably be embarrassed.
02. With the tightening of policies and the shackles of rebates, how can dealers break through the “double siege”?
Under the intensifying competition for involution, the “mess” in the auto market does not seem to be easy to clean up.
Since the end of last year, the controversial “high interest and high return” model in the field of auto finance has faced a heavy regulatory blow.
First, it was rumored on the Internet that the four major banks suspended the “high-interest and high-return” car loan business, and then the Chongqing Banking and Insurance Regulatory Bureau issued a document in January clearly prohibiting “seizing the market with high rebates”, and then banking associations in Sichuan, Henan and other places have successively issued self-discipline conventions, all of which are pointing directly to the chaos of “high interest and high return”.
Taking Henan as an example, in June this year, a number of banks in Henan Province collectively issued the “Statement on Regulating Automobile Consumer Finance Business”, requiring auto dealers to forcibly or principlefully promote high-commission auto financial products to customers, and strictly prohibiting the use of high commissions to deliberately lower car prices and induce consumers to repay loans in advance.
It is understood that “high interest and high return” is in the dealer’s car loan business, and the 4S store feeds back to customers in the form of car price subsidies and other ways to give back the loan profit rebate given by the bank, which is the main sales model of fuel vehicles at present. It is under this model that there is a phenomenon of “loans to buy a car cheaper than the full amount”, and 4S stores have also made a lot of money.
Now banks use this financial means of “drawing salaries at the bottom of the pot”, which can indeed cut off the chain of vicious competition to seize the market through high rebates at the source, but it is also a huge blow to dealers.
Coupled with the previous news of “supply cuts” of car subsidies in some areas, the auto market inevitably caused a commotion.
However, according to the latest response from relevant departments, the national trade-in subsidy policy for consumer goods in 2025 will last until December 31, and the remaining 138 billion yuan of central funds will be issued in batches in the third and fourth quarters. In other words, the “national subsidy” is still there, and it is only a normal connection window period.
It seems to be a false alarm, but according to the data, from January to May this year, the sales of A00-class cars and A0-class cars increased by 48% and 71% respectively, but the sales of A-class cars fell by 7%, and the increase of B-class cars was only 10%. In other words, the leverage effect of auto subsidies on the small low-end car market is much greater than that of the mid-size high-end car market.
Industry insiders are worried about this, once they fall into the encirclement of low-end products, dealers will face the reality that incremental revenue will not increase revenue or profits.
In addition to the policy “tightening curse”, the “rebate policy” from OEMs has also strangled the throat of dealers.
The rebate mechanism, which was originally a positive incentive, has gradually deformed in the intensifying price war, including strict restrictions on the rebate redemption period, cashing requirements, cashing form and rebate use, etc., which are intertwined into a “cage” that firmly binds dealers.
First, for the rebate redemption period, a special survey by the All-China Federation of Industry and Commerce Automobile Dealers Chamber of Commerce shows that in terms of fixed rebates, 17 brands have a cashing period of no more than 30 days; the cashing period of 9 brands is no more than 60 days; the cashing period of 12 brands is no more than 90 days; The cashing period of 4 brands is as long as 180 days, and 6 brands have not set up non-fixed rebates for various reasons, which is undoubtedly a huge test for the dealer’s capital chain.
Second, in response to the rebate cashing requirements, all brands will link the rebate cashing with the completion of sales tasks or the number of pick-ups and other assessment indicators, which also leads to dealers not only following the OEM to “sell one car and lose one” price war in order to get rebates, but also recklessly pick up the car, resulting in inventory backlog.
Third, for the form of cashing and the use of rebates, only 9 brands will directly give rebates to dealers in the form of cash, and 25 brands will only give rebates in the form of system accounts, and dealers can only use them to buy cars and accessories, which greatly weakens the flexibility of their capital use.
Compared with before, the gross profit margin of dealers’ new car sales business can be about 7-13%, plus the annualized interest of supply chain financing is less than 1%, not only few losses, but also abundant cash on the books, with relatively short financial rebates and after-sales profits can support daily operations.
But now that they are losing money selling cars, dealers rely more on car company rebates, financial rebates and after-sales business. As mentioned earlier, the “high interest rate and high return” is turned off, and the rebates of car companies are like far water cannot quench the thirst of the near, and the remaining after-sales business is also fiercely competing with independent after-sales service, and there are a lot of cages for dealers to be trapped.
Write at the end:
Some industry insiders said that the reason why dealers are trapped in the vicious circle of selling more and more is that they are currently relying on the manufacturer’s rebates to survive, rather than relying on their own sales profits to survive.
The assertion that “price war drags down dealers” has long been verified by the industry.
In September last year, the China Automobile Dealers Association officially submitted the “Emergency Report on the Current Financial Difficulties and Shutdown Risks Faced by Automobile Dealers” to relevant government departments, clearly pointing out that the price war in 8 months has caused a cumulative loss of 138 billion yuan in the overall retail sales of the new car market.
Dealers are also experiencing the “darkest moment”: on the one hand, weak consumption and manufacturers’ pressure have led to high inventories, forcing them to sell at low prices to alleviate financial pressure; On the other hand, the price war has caused serious inversions in purchase and sales prices, and the more you sell, the more you lose, and the pressure on financing maturity has led to a sharp increase in the risk of capital chain rupture.
The most direct risk comes from the continued deterioration of the profitability of car companies, with the data showing that the profit margin of the entire automotive industry fell to 3.9% in the first quarter of this year, falling to the most dangerous low.
It can be said that the price war has squeezed out profits from upstream suppliers, OEMs, and then downstream dealers.
Fortunately, in June, the official has taken action to turn on the red light on the vicious price competition in the automotive industry, and the Ministry of Commerce and the Ministry of Industry and Information Technology have clearly stated their stance to curb the disorderly price war in the market; “People’s Daily” and others also continued to call for stopping the involution of the industry.
As the voice of industry rationality becomes more and more intensive, the involution price war will also usher in an adjustment window, from suppliers to dealers, they are waiting for a dawn to arrive, not just a short-term boost for the “60-day account period”.
