Auto dealers in China report experiencing lower profits on 2011 operations in comparison with results in 2010, mainly due to factors including a changing economic and regulatory environment in China, coupled with a proliferation of brands and models, according to our 2012 China Dealer Attitude Study.
The percentage of dealers saying they were profitable in 2011 fell to 63% from 81% in the year-ago study. In addition, 20% of dealers say they lost money on their operations—up from 9% in last year’s study. This year’s study, which measures automotive dealer sentiment, is based on responses from 1,605 dealers of 38 different brands in 59 cities throughout China.
These profit findings in our 2012 China Dealer Attitude Study are troubling to more than just dealers. Automakers need dealers to continue to invest to meet their market potentials, and China customers increasingly expect more from their dealership experiences. This puts automotive brands with lower dealer profitability at a disadvantage relative to competitors.
Currently, dealerships in China derive 40% of their profits (on average) from new-vehicle sales, a proportion significantly higher than in mature markets. As the China automotive market continues to evolve, it is expected that dealerships will gain greater profits from vehicle financing, used-vehicle sales, and service and parts. These revenue streams tend to be more profitable than new-vehicle sales, and will help dealers to better weather any sales volatility.
Voice of the Dealer Critical to Automakers
Other findings from the 2012 China Dealer Attitude Study provide indicators for what dealers perceive is required for improved profitability. A few areas of key importance to dealers this year are:
• Greater support from automakers, in the form of marketing and incentives
• Continued focus on product quality
• Personnel training
It’s a given that great products are critical, but are only one part of the long-term success equation. Healthy, vibrant dealerships that help differentiate products in China’s incredibly competitive market are also critical to protecting automotive investments now and in the future.—Charles Mills, vice president, global retail experience at J.D. Power and Associates