Editor's Note

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

Focusing on the transformation of auto channels, "Auto Review" has specially produced this special report on the "Cover Story" for this issue. This special report consists of 7 articles, with the 6th article released today. Please stay tuned.

The domestic auto channel is undergoing unprecedented changes along with the industry. Over decades of development and change, policy initiatives from the central to local levels have been striving to guide the healthy development of the industry, create a favorable environment for solving transformation issues, create new opportunities, and promote continuous exploration of diversification.

Appealing to "relevant government departments to pay close attention to the current financial difficulties and shutdown risks faced by the auto dealership sector, decisively adopt phased financial relief policies and measures, and effectively prevent systemic risks in the auto dealership sector." A week before National Day, an urgent report on the current financial difficulties and shutdown risks faced by auto dealers submitted to relevant departments by the China Automobile Dealers Association (hereinafter referred to as "the Dealers Association") attracted attention in the industry. In the past two years, especially since this year, the intensifying price war has intensified various contradictions and problems that already existed in this sector, pushing dealers, who are already in the throes of transformational pain, into a "critical juncture of survival." At this time, the hope is that banks will not withdraw, discontinue, or pressure loans, allow flexible extensions, increase credit lines and special credit policies, and solve issues such as difficult and expensive financing. This has become the most direct expectation of many traditional dealerships for financial policies in order to "survive".

Double "New" Promotes Double "Direct," Diversification Underway

Currently, China has become the world's largest producer and consumer of automobiles, the largest exporter of automobiles, and the largest new energy vehicle market. However, it is facing an unprecedented complex situation. The auto sales channel system, which has made outstanding contributions to the development of China's automotive industry and market, especially the dealership system, is also facing unprecedented opportunities and challenges. The domestic auto market has transitioned from an incremental market to a stock market stage, and circulation efficiency has become an important aspect of improving the overall operational efficiency of the national economy.

Based on introductions from industry experts and existing data, China's auto channels have continuously innovated and evolved over the past 40+ years since the reform and opening up. According to a commonly recognized classification in the industry, they can be divided into the planned distribution stage, the passenger car operating rights stage, the manufacturer authorization model stage, and the manufacturer-led, transformative innovation stage. Industrial policies have played an important guiding and driving role in several key stages and have profoundly influenced channel changes in both direct and, more often, indirect ways at different times.

From 1978 to 2015, China's auto circulation market evolved from a planned economy circulation system era to an era where market-led and diversified channel models coexist. Particularly noteworthy is that starting from 2005, the policy formulation of relevant national departments for the auto circulation market began to intensify, and the guiding role was significantly strengthened. The "Measures for the Administration of Automobile Brand Sales" issued that year established the basic system for brand authorized sales in China's auto circulation field.

With the continuous development and growth of the domestic auto market, sales have transitioned from high growth to a medium-to-low growth phase. The 4S model, which originated in China in 1999, began to gain popularity in the passenger car sector, becoming the main channel for sales and after-sales service. However, a series of issues with this model, such as rigid management, excessively high prices, and insufficient competition, have also been more exposed. The industry needs more flexible sales models to meet the increasingly diverse needs of the market and users.

In 2017, the long-awaited new "Measures for the Administration of Automobile Sales" was introduced, returning the right to manage channels previously held by manufacturers to the market, stimulating vitality. While regulating the development of authorized business methods, it also encourages the healthy development of other non-authorized business methods and full competition. Judging from reports at the time, industry insiders pointed out that this was very conducive to ending the era of the 4S store model as the only authorized sales format, breaking the years-long monopoly of vehicle manufacturers in the auto circulation field, and promoting the healthy operation of the auto circulation industry. Since then, the industry has truly entered a stage where the traditional 4S model and the multi-brand concurrent model coexist. More exhibition halls, supermarkets, and after-sales sharing models have emerged one after another, and a large number of internet capital has also entered in succession, stirring up the industry.

In 2015, China's "Government Work Report" first proposed formulating an "Internet +" action plan to promote the integration of mobile internet, cloud computing, big data, the Internet of Things, and modern manufacturing. During this period, "Internet +" gave rise to a large number of emerging business forms and brand-new models, bringing considerable impact to traditional models such as auto 4S, especially the auto aftermarket, and promoting their accelerated transformation and upgrading as well as the improvement of quality services. This impact was even greater and more profound than that of new energy vehicles, a product inherently carrying the "Internet +" gene, which was still relatively small in scale at that time.

Around this period, a key variable strongly supported and vigorously promoted by various policy initiatives from the central to local governments—new energy vehicles—was growing rapidly and gradually gaining scale, driving tremendous changes in the auto sales channel system.

The "Development Plan for Energy-Saving and New Energy Vehicle Industry (2012-2020)" and the "Development Plan for New Energy Vehicle Industry (2021-2035)" not only clarified the overall thinking and basic principles for the development of China's new energy vehicle industry at different stages but also formulated corresponding market goals to guide the development of the new energy vehicle industry. There is also a series of special fiscal policies, energy replenishment guarantee policies, industrial management policies, etc., to provide support and protection.

In the early stages of the promotion of this industrial development, although the policies were sufficiently supportive, they did not attract enough attention from many traditional dealers. They either did not actively participate or barely intervened without substantial measures, and there were even cases where many 4S stores "ignored" new energy products in the corner. This system's "inadequacy" due to various subjective and objective reasons became an important factor for new energy vehicle enterprises, especially the new forces that entered the automotive industry at that time, mainly internet-based, to implement "direct sales." Online methods such as auto e-commerce and other "Internet +" have also become one of their important promotion channels, laying the groundwork for the subsequent rise of live streaming car sales.

Cui Dongshu, Secretary-General of the Passenger Car Market Joint Meeting, believes that from a product mix perspective, new energy and traditional auto markets are showing accelerated differentiation, which has a huge impact on the survival status of channels. With the rise of new energy vehicles, manufacturers' direct sales channels have also made some breakthroughs. The exploration and innovation of new energy vehicle sales models represented by new forces have driven the rapid development of the new energy vehicle market, thereby bringing about drastic changes in channels. The agency sales model has also struggled as European automakers explore ways to respond to the challenge posed by Tesla. However, in recent years, with the rise of new energy products from traditional automakers such as BYD, the 4S model has remained vibrant.

Whether it is to reduce costs and increase efficiency, accelerate promotion, or meet the increasingly diverse needs of consumers, not only the dual-track model of dealers plus direct sales but also a combination of exhibition halls, supermarkets, live e-commerce, etc., is what all parties need and is most effective at present. This will further promote the diversified evolution of auto channels.

Consumption Creates Opportunities, Creating a Good Environment

In recent years, especially during and after the pandemic, centering on the important orientation of "promoting consumption and expanding domestic demand," a series of heavy-hitting policies to boost auto consumption have been introduced from the central to local levels, covering multiple aspects of addressing bottlenecks in the auto circulation field.

In March of this year, the State Council issued a notice on the printing and distribution of the "Action Plan for Promoting Large-Scale Equipment Renewal and Consumer Goods Trade-In" (hereinafter referred to as the "Trade-In" action plan). The Action Plan proposes implementing a consumer goods trade-in initiative, carrying out automobile trade-ins, and providing specific opinions on encouraging manufacturers to promote auto sales and vehicle replacement schemes. Since then, a series of policies have been successively introduced, including the "Notice on Adjusting Policies Related to Auto Loans," the "Action Plan for Promoting Consumer Goods Trade-Ins," the "Detailed Rules for Implementing Auto Trade-In Subsidies," the "Notice on Allocating the 2024 Central Government Pre-allocated Fund Budget for Auto Trade-In Subsidies," and the "Measures for Creating New Consumption Scenarios and Cultivating New Growth Points in Consumption." These policies encourage auto manufacturers and sales enterprises to carry out promotional activities and guide the industry to compete in an orderly manner. Shanghai, Tianjin, Chengdu, and other places have also carried out various forms of auto trade-in and related auto consumption season activities. Auto enterprises and their various channels, especially dealer groups, have participated heavily in these activities.

While promoting consumption, these measures bring more challenges and opportunities for the development and transformation of various auto channels.

A policy of particular interest is that in 2022, the State Council issued the "Notice on Implementing a Package of Policy Measures to Solidly Stabilize the Economy," stating that restrictions on the migration of small non-operating used cars that meet the National V emission standards would be lifted nationwide, and regulations on the registration, filing, and vehicle transaction registration management of used car market entities would be improved. The Ministry of Commerce, the State Administration for Market Regulation, and 15 other departments also jointly issued the "Notice on Several Measures to Invigorate Auto Circulation and Expand Auto Consumption" that year, clearly proposing to promote consumption renewal and the stable development of the domestic auto market, with a particular emphasis on the full lifting of restrictions on the migration of used cars.

In recent years, benefiting from policies related to "lifting restrictions on migration," the used car business has become one of the highlights in the auto circulation field. In fact, as early as May 2020, after the implementation of the reform policy for value-added tax on used cars, lifting restrictions on migration and restoring the commodity attribute of used cars had already become the main breakthrough direction for the industry.

The accelerated and unimpeded circulation of used cars nationwide is conducive to promoting new car consumption and improving the rational utilization of resources. With the implementation of policies, the gradual establishment of a temporary property rights system for used cars is conducive to the sustainable development of dealers. Especially for used car dealers, financing can be obtained through bank mortgages to help enterprises grow rapidly.

In addition, in terms of financial policies, the "Several Measures" in 2022 specifically proposed encouraging auto manufacturers and sales enterprises to strengthen cooperation with financial leasing enterprises and increase the supply of financial services. The "Trade-In" action plan also has a direction of relaxing auto loan policies. The industry generally believes that this is not only conducive to stimulating replacement demand but also has important significance in broadening financing channels for upstream and downstream auto enterprises and driving the development of the industrial chain. It is reported that at a recent press conference held by the State Council Information Office, the People's Bank of China, the State Administration of Foreign Exchange, and the China Securities Regulatory Commission announced multiple heavy-hitting financial policies, sending a strong signal of financial support for high-quality economic development.

In the long run, the circulation industry hopes that the competent departments can introduce more policies and measures to fully exert their guiding role in the market and maintain market stability from the perspective of healthy and orderly development. The Dealers Association pointed out that the auto circulation industry is capital-intensive, with a relatively high proportion of private enterprises. Stable finance leads to vibrant circulation. Further improving financial services' support for circulation, especially increasing financial support for the development of private dealer enterprises, is of great significance for expanding auto consumption, upgrading the auto industry, and building a new development pattern of "dual circulation."

The effects of the implementation of the new round of policies are still further emerging. For all channels in the auto industry, national policies from the central to local levels are constantly striving to create a favorable environment for invigorating auto circulation and solving development issues. New opportunities are constantly emerging, and it is also a necessary path to face new challenges and endure the pain of transformation.