Recently I visited a sales head of a joint-venture automaker.
Naturally we talked about the continuously declining sales in the
first half of this year. He sought my professional opinion on this
topic because he couldn't find an answer through all perspectives,
including quality, design, word-of-mouth, employees' work rate and
the arrival of new generations of consumers.
He was very confused, and I tried in vain to persuade him that
this issue should be reviewed from a higher strategic level, rather
than day-to-day practical aspects. So I wrote this article to share
my point of view.
To be sure, the sagging China auto market is the natural outcome
of the longstanding unequal relations between different
stakeholders in China's auto industry. To the disappointment of the
abovementioned sales head, improved car quality, better design,
upgraded configurations and outstanding reputation couldn't stop
the sliding of the overall auto industry. It is the longstanding
unequal relations among stakeholders in this industry - those
between foreign brands and joint ventures, between automakers and
dealers, between traditional automakers and Internet companies -
that have emerged as the stumbling blocks. Only when these
relations become more balanced can the auto market's growth engine
Foreign brands and joint ventures
Compared with other markets, even after filtering out the
taxation element, auto prices in China are significantly higher.
Foreign brands earn lucrative profits from China through patent
transferring and licensing, designated equipment procurement, brand
merchandizing, and costs of foreign staff. Many listed foreign
brands worked very hard to include their Chinese ventures'
performances into their financial reports because with those
staggering numbers, their financial results appear much more
However, foreign brands often leave very little amount of money
in China to support the businesses' local growth. They appear more
interested in reaping the money from China rather than building up
a great local auto maker.
Automakers and dealers
Through setting high prices for complete cars and spare parts,
automakers managed to lock in their profits - they will always
remain profitable, sometimes with extremely high margins. When the
market is undersupplied, dealers have the opportunity to mark up
the retail price even higher. But when the market is oversupplied,
the dealers are left high and dry in cut-throat competitions to
sell cars. No matter which brands fail in China, the losses will be
mostly shouldered by the dealers and automakers can escape
unscathed. Some auto brands might be "generous enough" to hand out
subsidies, but towards the end of the day, it's always auto brands
making the calls and dealers are at a very weak position.
Traditional automakers and Internet
The relation between traditional automakers and Internet
companies paints an even more complicated picture. Automakers used
to be the center of the auto industry chain, but after Internet
companies burst into the scene, the dot com giants brought in brand
new management concepts, business models, even with their
ecosystems. Confronting these "barbarians at the gate", most
automakers opted to clinch their money bags closer to their chests
and refused to share anything with Internet companies.
As the industry evolves, both camps' paths will inevitably cross
because they share many destinations, such as Internet of cars,
smart vehicles, database marketing and cloud computing. A battle is
looming on the horizon. Interestingly enough, during the battle,
the trickle of talents leaving automakers to join Internet camp
keeps growing bigger. It seems the automakers are doomed to
Unequal relations always hurt the enthusiasm of one side. The
current pattern, though having existed for a long time, has
significantly prevented the sustainable growth of China's auto
industry. The sagging sales in the first half is not caused by
insufficient fundamental demand, rather it is because not every
stakeholder's interest has been properly taken care of. This is the
time for major players to sit down to have the hard talks and no
one can keep pretending not seeing the elephant in the room. Only
with a more balanced structure can China's auto market return to
growing path and move onto the next level from the current scale of
20 million units per year.
Source: Kantar TNS Siinotrust