Seemingly authoritative data does not hold up to scrutiny.

On September 23, as automakers scrambled to launch new models during the peak consumption season known as "golden September, silver October," the authoritative China Automobile Dealers Association (CADA) poured cold water on the hot market at this crucial juncture.

According to the association's latest announcement, the "price wars" from January to August this year have resulted in a cumulative loss of 138 billion yuan in the overall retail sales of new vehicles, significantly impacting the healthy development of the industry. It also pointed out that auto dealers are generally facing tight capital chains, leading to a sharp increase in the risk of closure.

Simultaneously, the association compiled an "Emergency Report on the Current Financial Difficulties and Closure Risks Facing Auto Dealers" based on internal industry statistics and submitted it to relevant administrative departments, hoping that policies would be introduced to save auto dealers on the brink of collapse.

As an organization registered with the Ministry of Civil Affairs, CADA is the largest automotive service trade industry association in China and wields considerable influence in the auto retail industry. Why would such an authoritative organization release a chilling industry report during the peak sales season for automobiles?

The Scars of Price Wars?

According to the content disclosed in the report, CADA attributes the current predicament faced by auto dealers to the price wars waged by automakers.

Surprisingly, although CADA officially confirmed the existence of the report, it stated that it could not be made public due to procedural issues and only released some content on its official website.

The report points out two major problems facing auto dealers. First, the double pressure of sluggish consumption and high wholesale volumes from manufacturers has kept dealer inventories high. To reduce financial pressure and financing costs, dealers are forced to sell at low prices to survive.

Second, the "price wars" have led to severe price inversions, with dealers losing more money the more they sell. At the same time, they face difficulties in fulfilling financing obligations upon expiration, leading to a disruption in operating cash flow and a sharp increase in the risk of capital chain breakage.

However, from a market perspective, these two issues are still debatable. First, regarding price wars, it is well-known that the domestic auto industry has entered a new round of price competition since the beginning of this year, with domestic brands leading the way in price cuts.

Spurred by BYD's aggressive price cuts, almost all domestic brands have followed suit. According to incomplete statistics, more than 170 models have reduced prices in the first eight months of this year, far exceeding the 150 models that saw price reductions throughout 2023. It can be said that the auto price war has intensified, with price cuts becoming the last resort for automakers to boost sales.

After the elimination in 2023, only a few joint venture brands remain, and those that stayed in the domestic market are unwilling to lose this largest single market in the world and have no choice but to join the price war.

Surprisingly, despite the increasing number and intensity of price cuts, the average transaction price of new vehicles has continued to rise. In August, the average price was 196,000 yuan, an increase of 22.5% compared to 2023 and even 17,000 yuan higher than the first half of the year at 179,000 yuan.

It can be said that amidst the seemingly fierce price wars, the transaction prices of new vehicles continue to rise. In contrast, the Consumer Price Index (CPI) for the first half of this year was only 0.1%, far lower than the growth rate of vehicle transaction prices.

Meanwhile, auto sales have continued to climb. According to statistics, domestic passenger vehicle dealers sold nearly 1.99 million vehicles in August, a month-on-month increase of 8.8% and a year-on-year increase of 3.5%.

Despite the simultaneous growth in sales volume and average selling price, auto dealers claim that their losses are expanding and attribute these factors to price wars, which seems contrary to common sense.

However, a closer analysis of the market reveals that the current auto market is evolving towards a new price range, making the entire auto dealer industry exceptionally vulnerable to change.

The Pain of Luxury Brands

In the domestic market, a vehicle is generally considered a luxury brand if its price exceeds 300,000 yuan. Under the impact of price wars, models priced above 300,000 yuan have been the first to fall and suffer the most damage. According to statistics, only the auto segment above 300,000 yuan experienced a sales decline in August, with a year-on-year drop of 27.5% and a month-on-month decline of 11.4%.

When discussing luxury brands above 300,000 yuan, Chinese consumers are familiar with BBA, which dominate this segment. Moreover, the market above 300,000 yuan is also where the fuel vehicle market retains its competitiveness.

To maintain competitiveness, BBA has continuously lowered prices for its main sales models priced above 300,000 yuan, entering the 250,000-300,000 yuan range to capture more market share and sustain sales. One of the most significant impacts was BMW's price adjustment from June to July.

In June, to maintain sales, BMW offered the maximum discounts, with the officially guided price of the i3, originally 353,900 yuan, dropping below 200,000 yuan. The main sales model, the 3 Series, also sold for less than 300,000 yuan at dealerships, temporarily outperforming Mercedes-Benz and Audi in sales.

However, the good times didn't last long. On July 12, BMW announced its withdrawal from the price war, adjusting prices upwards at dealerships. Some dealerships even refused to deliver vehicles at low prices, leading to a series of issues and generating significant buzz.

Ultimately, BMW lost the price war. In August, after announcing the price adjustment, sales plummeted by 42% year-on-year to only 34,800 units. Even the flagship 3 Series model only sold 8,000 units.

In contrast, competitors Mercedes-Benz and Audi maintained sales figures of 49,500 and 47,900 units, respectively. It can be said that under BMW's series of moves, Mercedes-Benz and Audi essentially won August by default.

Some believe that BMW's actions were taken to maintain profitability and stabilize dealers. Since 2023, BMW's terminal discounts have consistently hovered around 17.66%, significantly higher than the industry average of 15.7%. Dealers have already been under immense pressure.

Despite BMW's flip-flopping, dealers' operations have not stabilized but have become increasingly difficult. BMW dealers' current situation mirrors that of joint venture brand dealers, who are facing increasingly challenging business conditions.

However, to maintain brand prestige, dealers often cooperate with automakers to pressure sales, a common practice in the industry. According to data released by CADA, as of August this year, the highest dealer price inversion reached -22.8%, an increase of 10.7 percentage points year-on-year.

From this perspective, dealers have become a crucial support for automakers in stabilizing the market. For well-performing dealers, automakers often offer additional compensation or sales incentives to achieve mutual benefits, all under the premise that automakers are profitable.

However, statistics show that the operating conditions of major domestic automakers were not optimistic in the first half of this year, with more than half experiencing declining profits, particularly those with joint venture backgrounds.

It can be said that amidst price wars, few enterprises in the entire automotive industry are profitable. Both upstream automakers and downstream dealers are struggling to survive, especially dealers who have direct contact with consumers. This year, many large dealer groups have experienced operational difficulties or even bankruptcies.

The entire automotive industry is shaking, and theoretically, consumers should be the only beneficiaries of price wars. However, judging from transaction prices, consumers are not spending less on car purchases but rather more.

In the long run, however, the auto market is still in its most prosperous phase, with policies continuously increasing subsidies for car purchases and the share of new energy vehicles rising steadily. The market remains in the golden age of new energy vehicles, and it is traditional automakers that may suffer from not keeping up with the pace.

From the Intensive new car launch event in September, it can be seen that vehicle prices are continuing to decline, allowing consumers to choose more cost-effective new models than before. The market is evolving towards a better supply-demand relationship. The so-called 100 billion yuan loss appears more like a squeeze of excess moisture in the sales chain, which may have been artificially inflated in the first place.

Note: Some images are sourced from the internet. If there is any infringement, please contact us for removal.