J.D. Power Reports Chinese Auto Industry Experiencing Declining Dealership Profits
BEIJING April 22, 2012; A Changing economic and regulatory environment, coupled with more products and dealerships, have led China vehicle dealers to report lower profits on 2011 operations, compared with 2010, according to the J.D. Power Asia Pacific 2012 China Dealer Attitude Study(SM).
Findings from this annual study on automotive dealer sentiment, which this year includes 1,605 dealers of 38 different brands in 59 cities in China, indicate the percentage of dealers reporting they were profitable in 2011 fell to 63 percent, compared with 81 percent a year ago, and 20 percent of dealers report they lost money on their operations€”up from 9 percent in the 2011 study.
"These profit findings are troubling to more than just dealers," said Charles Mills, vice president, global retail experience at J.D. Power and Associates. "Brands need dealers to continue to invest to meet their market potentials, and China customers increasingly expect more from their dealership experiences. This puts brands with lower dealer profitability at a disadvantage relative to competitors."
Entry-Level Segment Sales Hardest Hit
China new-vehicle sales in the first quarter of
2012 increased by just 2 percent from the same period last year. The
sluggish sales
growth has affected entry-level vehicle segments more than other
segments, despite a continued increase in retail gas prices
in China. Fuel prices in China are now more than 20 percent higher than
the average price in the United
States.
Typically, consumers trade down to smaller, cheaper and more
fuel-efficient vehicles when gas prices rise, but current China market dynamics are challenging this
trend. Luxury vehicle sales are continuing to surge, driven by consumers
with deep pockets
who are less price sensitive, and manufacturer-provided dealer
incentives have lowered consumer-facing transaction prices.
By contrast, entry-level vehicles are falling victim to the gas-price
hype as consumers exhibit a greater level of price sensitivity.
The three entry-level vehicle segments€”minicars, sub-compact and compact€”account for 55-60 percent of China passenger-vehicle sales, according to LMC Automotive's China analyst, John Zeng. Sales of entry-level vehicles in the first three months of 2012 declined by 5 percent from the same period last year. Minicars led the deceleration among these three segments, with a 30 percent decline in sales versus the same three-month period in 2011. China domestic-brand sales have been strongly impacted by this situation, as has their dealerships' profitability.
On average, dealerships in China currently derive 40 percent of their profits 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, enabling dealerships' profitability to better weather any sales volatility.
The World's Largest Auto Market Shifts Gear
Currently,
new-vehicle shoppers in China have the
world's widest range of choices, with 94 brands and 476 models from which
to choose. That compares with fewer than
40 brands and nearly 100 fewer models available in the U.S. market,
the second-largest automotive market in the world in 2011.
LMC Automotive forecasts a nine percent growth in passenger-vehicle sales in 2012, a much lower rate than in previous years when China's new-vehicle sales surged at double-digit rates. China's passenger-vehicle market is expected to grow at a compounded annual rate of 12.4 percent during the next four years and will reach an estimated 20.9 million units annually by 2015.
Voice of the Dealer Critical to Automakers
Other findings
from the 2012 Dealer Attitude Study provide indicators for what dealers
perceive is required for improved profitability.
Greater support from automakers, in the form of marketing and
incentives; continued focus on product quality; and personnel
training are all areas of great importance to dealers this year. The
importance of automaker support is emphasized by a finding
that indicates there is a strong relationship between dealer
perceptions of automakers' performance and dealer profitability,
with dealers who are "delighted" (providing a satisfaction rating of
10 on a 10-point scale) with their brand indicating they
are more profitable, compared with dealers who provide lower ratings
for satisfaction. The brands with the highest level of
dealers who are "delighted" also tend to perform well in J.D. Power
studies on China automotive customer
satisfaction.
"Great products are critical, but are only one part of the long-term success equation. Healthy, vibrant dealerships that help differentiate products in this incredibly competitive market are also critical to protecting automotive investments," said Mills.
About J.D. Power Asia Pacific
The 2012 J.D. Power Asia Pacific China Dealer Attitude Study will
be released on April 27. J.D. Power Asia Pacific conducts customer satisfaction
research and provides consulting services in the automotive, information
technology and finance
industries, from its offices in Tokyo, Singapore, Beijing, Shanghai and Bangkok. Together, the five offices bring the
language of customer satisfaction to consumers and businesses in China, India,
Indonesia, Japan, Malaysia, Philippines, Taiwan, Thailand and Vietnam. Information regarding J.D. Power Asia Pacific and its products can be accessed
through the Internet at www.jdpower.com. Media e-mail contact:
ellen_wang@jdpa.com.
About J.D. Power and Associates
Headquartered in Westlake Village, Calif., J.D. Power and
Associates is a global marketing information services company providing
performance improvement, social media
and customer satisfaction insights and solutions. The company's
quality and satisfaction measurements are based on responses
from millions of consumers annually. For more information on car
reviews and ratings, car insurance, health insurance, cell phone ratings,
and more, please visit JDPower.com. J.D. Power and Associates is a business
unit of The McGraw-Hill Companies.
About The McGraw-Hill Companies
McGraw-Hill announced on
September 12, 2011, its intention to separate
into two public companies: McGraw-Hill Financial, a leading provider of
content and analytics
to global financial markets, and McGraw-Hill Education, a leading
education company focused on digital learning and education
services worldwide. McGraw-Hill Financial's leading brands include
Standard & Poor's Ratings Services, S&P Capital IQ, S&P
Indices, Platts energy information services and J.D. Power and
Associates. With sales of $6.2 billion in
2010, the Corporation has approximately 21,000 employees across more than
280 offices in 40 countries. Additional information
is available at http://www.mcgraw-hill.com/.
About LMC Automotive
LMC Automotive, formerly
J.D. Power Automotive Forecasting, is the premier supplier of automotive
forecasts and intelligence
to an extensive client base of automotive manufacturer, component
suppliers, logistics and distribution companies, as well
as financial and government institutions around the world. Its global
forecasting services encompass automotive sales, production
and powertrain expertise, as well as advisory capability. LMC
Automotive has offices in the U.S., the UK, Germany, China
and Thailand. It is part of the Oxford, UK-based LMC group, the global leader in
economic and business consultancy for the agribusiness sector.