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Alibaba’s new auto e-commerce strategy being questioned

Alibaba Group has launched its ambitious 2015 auto e-commerce strategy, only to find it being widely questioned by automakers, the strategy’s target customers.

Alibaba has recently announced to wade into the auto sales business, just after it launched a joint project with SAIC Motor for building cars equipped with network interaction features. Wang Licheng, president of Alibaba’s Auto Business Unit, spoke to the 21st Century Business Herald on April 22 about the strategy, noting that Alibaba aims to collaborate with all major automakers for diving into all aspects of the car purchasing process and aftersales.

Alibaba claims it has successfully collected “big data” from auto buyers and so could make cars that better serve their needs.

The company’s auto-related businesses have grown by an average of 70 percent annually over the past three years, and in 2014, related transactions on Taobao and Tmall amounted to nearly ¥40 billion ($6.45 billion).

However, in the eyes of automakers, if they want to sell cars through Alibaba, they would do it only for advertising purposes, and the fact is, most online transactions are settled online after successful offline sales.

Alibaba established its auto business unit in early April, trying to seek breakthroughs from new angles. But market environment is changing fast. Other e-commerce companies like Jd.com and Suning are rushing to open vertical online shops, while carmakers are also busy setting up their own online platforms. Under these circumstances, it is not clear whether Alibaba’s new strategy will work.

 

Expectations

Alibaba’s high-profile 2015 auto strategy suggests that it would join hands with automakers to build a new industry featuring “Internet+ Auto” and it would turn to its “big data” to upgrade traditional 4S service to the so-called “16S” service.

In essence, Taobao would become the biggest car owners’ market and online aftersales market; Tmall is to be positioned as the biggest online vehicle market and launch platform; and juhuasuan.com would serve as the biggest auto group-buying and brand marketing platform.

“The goal of our team is to help manufacturers cut down marketing costs, customize sales service for potential buyers to be able to pin down the most suitable models for themselves more quickly and at lower cost, and to make cars more maneuverable with low maintenance cost,” Wang concluded.

With the launch of this strategy, 40 brands including BMW, Jaguar, Land Rover, Buick, Toyota, and Chevrolet have established strategic and cooperative partnerships with Alibaba’s auto business unit.

“In the future, the internet would be indispensable for the auto industry. With post-90s rushing to buy their cars, the generation who are more adapt to online shopping could probably change traditional ways of car consumption,” commented Cai Bin, vice president of Shanghai-GM.

A Nielsen research report indicates that roughly two-thirds of the online buyers frequenting Alibaba platforms own cars, a proportion that is considerably higher than those of other e-commerce platforms. Moreover, Alibaba is now able to successfully reach out to and affect 60 million car owners. That is the reason why Jack Ma keeps on increasing his bet on Alibaba’s auto business unit.

 

Challenges

However, for Alibaba to successfully influence these 60 million car owners, there are practically many challenges.

“The ‘16S’ is just a hype,” said a marketing director of one carmaker. “Although Tmall has attracted a lot of traffic, compared with netizens frequenting more professional vertical websites, Tmall buyers are actually not that into auto products.”

The fact is, although Tmall car purchasing could avoid excessive red tape through Alipay loans, there are still limitations to loan line checks based on only big data. Besides, most Tmall buyers are not really potential car buyers.

Models that would prosper

Among all carmakers, Geely is the first to open an online shop on Tmall. But now, according to Dai Shihui, Geely’s digital marketing director, the company’s marketing emphasis has been transferred to its own official website.

“Due to cost considerations, we are setting up our own official online platforms for selling cars,” he said.

And this is actually becoming a common practice in the industry.

Some industry insiders say that online shops are only for carmakers to clean up inventory or to promote special offers. For example, Geely’s recently launched GC9 (Borui) is now only for sale on its own official website.

“We hope that in this way, traffic to our official website could be increased,” said Dai, explaining that that Geely is doing this for gaining control over its marketing channels.

Auto e-commerce may seem overwhelming at the current stage, although the future for Alibaba’s model remains unpredictable.

From the perspectives of carmakers, even if auto e-commerce could prosper someday, it should be in the form of BMW i3 and Tesla model, meaning that manufacturers would sell to consumers directly while dealerships would transform into showrooms just for delivery and aftersales. Certainly, the precondition for the model is to have price transparency and competitive products.

So far, the most successful model for online car sales is perhaps truecar.com in the U.S. Its operating model seems more like real estate agents in China. For example, if a potential Audi buyer fills out a registration form online, he (or she) would soon receive quotations from all Audi dealers; and after the deal is done, the two parties just need to pay a commission charge. Some internet companies in China have begun to emulate this model.

Which e-commerce model would finally prevail? It remains to be seen.

(Rewritten by Rebecca Lin based on author’s article on China Auto Think Tank 30)

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