AutoBeta(AutoBeta.net)08/30 Report--

As a huge group that was once the largest car dealer in China, the company lost 1.2 billion yuan in the first half of the year and made a profit of 258 million yuan in the same period last year. This also shows that under the continuous negative growth of sales in the car market, car dealers have suffered a very severe impact.

From Guanghui Automobile, Zhongsheng Group, Yongda Automobile, Dachang Motor, Guanghui Baoxin, Meidong Motor and Xinfengtai, eight dealers have released first-half results, according to the data, although operating income increased year-on-year, but in terms of net profit, five dealers showed a significant decline, with two of them falling by more than 20%.

According to data released by the Federation of passengers, the national passenger car market sold 1.485 million units in July, down 5% from the same period last year and 15.9% from the previous month. From January to July this year, retail sales of passenger cars in the narrow sense fell by 8.8%, and the retail sales growth rate in July was better than the cumulative annual growth rate. In terms of production, China produced a total of 1.504 million narrow passenger cars in July, down 10.9 percent from July last year and 4 percent from June.

In July, the comprehensive inventory coefficient of automobile dealers was 1.75, down 2% from the same period last year and up 27% from the previous year. According to industry practice, the inventory coefficient equal to 1.5 is the warning line, 1.75 has obviously exceeded the line, and the operating pressure and risk are obvious.

At the same time, the report of the Automobile Dealers' satisfaction Survey to Automobile suppliers released by the all-China Federation of Industry and Commerce showed that the gross profit of new cars of dealers dropped to 0.4% in 2018 from 5.5% in 2017. The loss area of dealers increased to 39.3% from 11.4% in 2017, and nearly 40% of dealers lost net profit. Entering 2019, this situation has not been improved, the dealers' gross profit of new cars is generally negative, and the loss area is further increased.

Starting from July this year, the sixth national emission standard will be formally implemented in many places across the country. On the eve of the sixth National Day, front-line dealers are at a loss for the "national fifth clear treasury". According to a survey conducted by the all-China Federation of Industry and Commerce, 66% of dealers in areas where the national six emission standards have been announced in advance reported that they could not digest the vehicles in stock by July 1. Among them, 60% of dealers said that the backlog of national five vehicles is about 100. In addition, 65% of dealers said that the current average terminal price of five cars is less than 20% discount.

As once the "largest car dealer in China", the giant group is now in decline. The huge group with a market capitalization of more than 60 billion and more than 1400 stores is facing years of losses, shrinking market capitalization, bankruptcy and restructuring. And from the financial results of the first quarter of 2019, the giant group achieved revenue of 4.483 billion yuan, down 68.26% from the same period last year, and deducted non-net profit of-498 million yuan, down 2520.92% from the same period last year. The decline in business has not been reversed since 2017.

It is worth noting that the profits of dealers who represent more luxury cars and Japanese cars in the first half of this year are significantly better than those of other dealers. This is mainly due to the fact that China's luxury car market grew by more than 8% in the first half of this year, with Japanese cars doing even better. According to the China Association of Automobile Manufacturers, the market share of Japanese cars increased to 22.7% from 19.9% in the first half of last year, an increase of 2.8%. In the brand structure, the dealers who prefer luxury cars and Japanese cars have an obvious preference for performance.

The most typical is Meidong Motor, which operates only five brands, including two Japanese brands with stable sales, Toyota and Lexus, and two luxury brands, BMW and Porsche. In the first half of this year, its operating income was 6.843 billion, an increase of 57.4% over the same period last year. The net profit belonging to shareholders of listed companies was 235 million yuan, an increase of 49.6% over the same period last year, of which the contribution rate of luxury new car sales income increased to 80.0%.

However, despite the increase in sales revenue, the profit performance of some dealers is not satisfactory, which is precisely because the overall profits of dealers have been affected by the industry. Guanghui Automobile, as the largest dealer, although its operating income reached 80.71 billion yuan in the first half of the year, far exceeding the second place, its net profit belonging to shareholders of listed companies was 1.51 billion yuan, down 28.40 percent from the same period last year. As for the reasons for the decline, Guanghui gave an explanation in the financial report as "affected by the market environment, the gross margin space for vehicle sales is gradually shrinking."

Companies such as American East Motor, Zhongsheng Group and Yongda Motor are among the few companies with rising net profits in eight because they operate a number of luxury and Japanese brands. The net profits of the other five companies all showed a decline in varying degrees, mostly because of the downturn in the automobile market and small profit margins.

In this regard, the industry generally believes that with the temporary withdrawal of the peak period of the automobile industry, the traditional automobile industry will gradually transition from the growth period to the mature period, and the slow growth of sales will become the norm. In this case, for the automobile dealer group, in addition to the new car business, it is also looking for new profit growth points.

Although new car sales are still the most important part of the dealer group's revenue, gross margins on new car sales are getting lower and lower, while other derivative businesses are more profitable.

For all large automobile dealer groups, while steadily expanding new car sales, they should pay attention to business transformation and upgrading, gradually changing from "heavy sales" to "service", through the development of passenger car after-sales and derivative business with high gross profit margin, reduce the impact of industry fluctuations on operations.

Derivative business such as used cars and auto finance has become the key transformation business of many dealer groups, and the growth is obvious.

According to the 2018 annual report, Guanghui Automobile accounts for an increase in the proportion of after-sales maintenance and derivative business with higher gross margins. In 2018, the revenue of the company's maintenance services, commission agents and car financial leasing increased by 15.36%, 18.35% and 19.77% respectively over the same period last year, accounting for a combined increase of 1.57 percentage points over the same period in 2017. In addition, Guanghui Automobile's used car business sales also achieved a large increase, up as high as 48.88% compared with the same period last year.

As a positive, on August 27, the State Council issued the opinions on speeding up the Development of Circulation and promoting Commercial consumption, which proposed to release the potential of automobile consumption through three major measures, including calling for the exploration of gradual relaxation or abolition of purchase restrictions, active support for the purchase of new energy vehicles where possible, and promoting the circulation of second-hand cars. In a sense, it will also eradicate some of the hard sales wounds of car dealers and endorse them for the second half of the year.

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