Editor's Note

Driven by new technologies and intensified competition, the elements of the automotive market are undergoing profound restructuring; the contradiction between supply and demand has shifted, moving from a seller's market to a buyer's market, with the core ecosystem shifting from the vehicle supply side to the customer demand side. With the industrial transformation and upgrading, brands are surging upwards, and user experience demands are unprecedented. The traditional automotive channel ecosystem is changing in response to these trends, with channel operation models becoming more diverse. Automotive industry enterprises should jointly face the new challenges of channel ecosystem transformation.

Focusing on the transformation of auto channels, Auto Review has specially prepared this "Cover Story" special report. This special report consists of a total of 7 articles, with the first one published today. Stay tuned.

The automotive channel ecosystem has become richer and more complex, and channel forms are also becoming more diverse. However, the choice of channel model ultimately depends on finding the one that best meets the needs or fits the brand the most, because only channel models that meet market demand and suit one's own development have vitality.

Technological changes such as electrification, intelligence, and connectivity, along with the continuous integration of new market elements and entities, are driving cross-border integration in the automotive industry, thereby triggering profound changes and restructuring in the sector. Changes in the automotive channel ecosystem are an important manifestation of this. Conflicts between manufacturers and dealers have intensified, with dealers pressuring automakers; some previously leading auto dealers have been delisted; amid fierce price wars, price inversions are severe, dealers' profitability has declined, and the overall gross margin of 4S stores was only 4.99% in 2023, with operating pressures soaring; dealers also face many practical problems such as inventory pressure and difficult and expensive financing.

So, what important changes have occurred in the automotive channel ecosystem? Where should auto channel providers go from here? To this end, Auto Review interviewed several industry experts, who put forward many valuable suggestions and insights.

Reconstructing a New Automotive Channel Ecosystem

Currently, the elements of the automotive market are undergoing profound restructuring. Vehicle manufacturers are continuously developing new channel resources and actively deploying in business districts; in the process of promoting automotive brands upwards, channels are also moving upwards, actively experimenting with direct sales models; channels are sinking, actively exploring rural markets; along with digital development, automotive sales are becoming more e-commerce-oriented, and vehicle manufacturers, channel providers, and online platforms are cooperating to integrate online and offline resources. The automotive channel ecosystem is gradually becoming richer and more complex. So, how should we re-understand the automotive channel ecosystem?

Xu Haidong, Deputy Chief Engineer of the China Association of Automobile Manufacturers, said in an interview with Auto Review that the changes can be seen from the following aspects:

First, automotive marketing channels have shifted from the traditional 4S store model to the internet direct sales model led by Tesla and other new carmaking forces. The development of this direct sales model has impacted the marketing channels and models of the traditional automotive industry, which have existed for over a century.

Second, the development of the internet and smartphones has fundamentally changed automotive marketing methods. In the past, traditional automotive marketing mainly involved offline exhibitions, sports or major event-related advertising, movies, television, newspapers, magazines, and various offline thematic activities, with offline-focused marketing activities at its core. However, in today's internet era, especially after the impact of the COVID-19 pandemic over the past three years, online-focused marketing models have rapidly developed, including online launches, internet advertising, mobile phone push notifications on internet platforms, short video promotions, live streaming marketing, internet celebrity promotions, event marketing, founder live streams, KOLs, and other marketing models, forming an overall marketing ecosystem.

Third, marketing models focused on consumer demand and emphasizing the consumer experience have developed rapidly. At this stage, automotive enterprises are establishing brand fan groups by building diverse automotive communities, deepening marketing and promotional content, and creating private domain traffic and self-operated channels. Through close connections and promotions within fan groups, they aim to create a relatively popular brand influence, thereby driving product marketing.

Xing Haitao, Secretary-General of the China Automobile Dealers Chamber of Commerce, said in an interview with Auto Review that changes in automotive channels are mainly reflected in two aspects: First, channel forms have become more diverse. In the past, the authorized dealer model was predominantly used, but now, in addition to the dealer model, there are also self-operated and agency models. Second, automakers, especially some new energy vehicle brands, are constantly experimenting with various channel forms. Some are returning to the traditional authorized dealer model from the direct sales or agency model, while others, such as new carmaking forces or new energy vehicle brands, are trying out the direct sales or agency model. These are currently the two most notable characteristics of the entire automotive channel landscape.

"In the past, automakers adopted the authorized dealer model, and later, some enterprises introduced the direct sales model. However, in terms of sales volume, the authorized dealer model has always been the mainstream, and the direct sales model has not become the mainstream," said Wang Du, Assistant President of the China Automobile Dealers Association, in an interview with Auto Review. "The direct sales model gained popularity for a period, becoming fashionable in China, but it comes with heavy inventory burdens and high financial costs, so some automakers have returned to the authorized dealer model or agency system. However, in terms of sales volume, the agency system has never become the mainstream either."

Cui Dongshu, Secretary-General of the China Passenger Car Association, said in an interview with Auto Review that current channels exhibit shorter, flatter, and faster characteristics. Online sales and direct sales models have to some extent promoted sales growth. The official websites of some enterprises have achieved certain sales results, and apps have also become sales and customer acquisition tools. Traditional sales models have brought automakers and consumers closer through new relationship models involving manufacturers, dealers, and consumers.

In fact, new changes have also emerged in the used car channel ecosystem. Ren Yukai, Deputy Director of the Joint Commission on Manufacturer Used Cars of the China Association of Automobile Manufacturers and an expert on the Automotive Aftermarket Industry Governance Committee of the China Consumer Product Quality and Safety Promotion Council, said in an interview with Auto Review, "Currently, there are two fundamental changes in the used car channel ecosystem: First, the used car market has shifted from a seller's market to a buyer's market. Second, the form of customer acquisition for used cars has shifted from primarily physical markets to primarily internet-based customer acquisition." Obviously, changes in the channel ecosystem will have a profound impact on the development of the automotive industry.

Multiple Factors at Play

So, what are the main factors that trigger changes in the channel ecosystem?

Xu Haidong believes that three of the four cornerstones of current marketing have undergone significant changes. The 4Ps are the foundation of marketing theory, with enterprise marketing revolving around four basic factors: product, price, place (channel), and promotion. Amid the unprecedented major changes in the automotive industry over the past century, fundamental changes have occurred in automotive products themselves, marketing channels, and promotional measures.

"Automotive products have undergone revolutionary changes in nearly a century, transitioning from traditional fuel vehicles to new energy intelligent and connected vehicles. During this transition, the products themselves have undergone tremendous changes, as have the ways in which they are used," said Xu Haidong. He explained that products have shifted from internal combustion engines, automatic transmissions, and mechanical steering, transmission, and braking systems to the development of batteries, electric motors, and electronic controls; automotive products that were once completely controlled by the driver have now transformed into requiring numerous advanced driver assistance systems and are gradually moving towards autonomous driving; and automobiles have also transformed from mere transportation tools into super intelligent terminals with more ecosystems, providing consumers with more services for work, life, and entertainment.

Xu Haidong pointed out that due to the development of the internet and smartphones, marketing channels and promotional measures have undergone tremendous changes. Marketing tools, methods, and measures have shifted from primarily offline activities to primarily online activities. At the same time, changes in the needs and preferences of younger consumers have driven significant changes in marketing channels and promotional models. Younger consumers have grown up in an internet environment and are native to the internet generation. The way they acquire and transmit information has undergone tremendous changes. Therefore, automotive product development and marketing need to continuously meet the trend of youth and individuality.

"The development of new technologies has driven the advancement of marketing technology," said Xu Haidong. For example, with the development of artificial intelligence technology, through big data analysis, one can accurately identify consumers' habits, preferences, and other personalized characteristics, enabling targeted promotional pushes; the development of virtual visualization technology can provide consumers with more virtual showcases and comparisons of various models, and can even offer personalized customization services. Xu Haidong said, "The application of cutting-edge technology has driven the development of the automotive marketing ecosystem."

Xu Haidong believes that the consensus on sustainable human development has also led to changes in marketing direction and purpose. Requirements for green development, low-carbon development, sustainable development, and ESG regulations have formed a basic consensus among humans, influencing consumers' preferences and ultimately leading to significant changes in corporate marketing models.