BEIJING – Automotive e-commerce is not simply online business models taking over or disrupting traditional offline activities, but rather the integration of the two, according to executives of several automotive e-commerce platforms at the 2015 China Internet Auto E-Commerce Summit held in Beijing on September 13.
The Summit was organized by AutoR (Zhi Jia) and CBU/CAR and supported by China Council for the Promotional of International Trade Automotive Industry Committee (CCPIT-Auto), China Information Industry Trade Association (CIITA) and China E-Commerce Association (CECA).
“There is really no online to offline or offline to online,” said Jeff Xia, CEO of chexiang.com, the O2O automotive e-commerce platform setup by SAIC Motor in April 2014. “The two ‘Os’ should be seamlessly integrated and users can switch between the two easily.”
Xia, who is also president of Shanghai Automotive Industry Sales Co., Ltd., stressed that at the end of the day, automotive e-commerce is about getting back to business basics: providing good products and services. He suggested that automotive e-commerce startups avoid three pitfalls: blind worshipping of everything online, copycatting existing business models and pursuing unrealistic goals.
“The transformation of automobile sales and service is a protracted warfare and a marathon, but you must run it at the pace of a 100-meter dash,” said Xia.
Xia stressed that chexiang.com will utilize unique resources and advantages from SAIC Motor’s position as China’s leading automaker and create a unique business DNA and capabilities that no one else can possess.
Chexiang.com’s business scope, according to Xia, will not only cover new vehicle sales, but also used car transaction, aftermarket and services. “We want to make chexiang.com a one-stop service provider for customers,” said Xia. “Our goal is to become China’s No. 1 automotive service transaction platform and brand and eventually go public with market cap of over ¥100 billion ($15.75 billion).”
In fact, on September 20, chexiang.com and SAIC Motor launched the chexiangjia franchised offline service brand covering maintenance & repair, rental & leasing and used car services, available at 50 locations in 12 cities.
“E-commerce is a means, not a purpose,” said Zhang Zheng, president of Dongfeng-Nissan Digital Marketing Co. “Digital marketing in China’s auto market is heading to a 3.0 era from a 1.0 era.”
Dongfeng-Nissan launched its chebaba.com platform on August 8 which is simply a cluster of existing third-party e-commerce platforms.
“We hope that through our e-commerce platform our dealers can receive more orders and provide more efficient service with lesser staff,” said Zhang.
Dongfeng-Nissan’s e-commerce platform, according to Zhang, wants to achieve four major goals this year: add additional users, contribute 20,000 units in added vehicle deliveries, product restructuring and transform 50 dealers into e-commerce friendly dealers.
Coincidentally, August 8 also witnessed the formation of another type of automotive e-commerce platform – autostreets.com, which is formed jointly by 40 large dealer groups and Cox Automotive from the U.S.
“It’s not autostreets.com that brought the dealer group together,” said CEO Johnson Guo. “It was the dealership groups, through their experience over the years, that chose to form this platform.”
Autostreets.com’s positioning, according to Guo, is not only providing consumers with superior and convenient services just like other platforms, but also serving the dealers as well.
Guo revealed two reasons why these dealerships decided to come together. First, creating an e-commerce platform would require huge upfront capital and professional talent. It would not be cost effective for each dealer to invest individually. Second, conflict of interest among different dealers and also lack of service for dealers on vertical e-commerce platforms.
Pang Qinghua, chairman of Pangda Automobile Trade Group, one of China’s largest dealer groups and a member of autostreets.com, believes that the 4S dealership business model is being challenged and may not be the right model for dealerships.
“Consumer habits are changing, policies are changing and technologies are changing,” said Pang. “Dealers must confront these changes and embrace new business models.” In fact, Pangda recently launched its own door-to-door maintenance service which has seen the emergence of several players within the last year.
“We probably can’t disrupt others but we must change ourselves,” said Pang.
The nature of O2O is not about one taking over the other, but about how to have online and offline work in tandem, according to Lean Wang, president of the automobile business unit of Alibaba, or Ali Auto.
“Online is like a person’s head, while offline is his body, while service is his feet,” said Wang. “It is about integrating online and offline resources into one component.”
Ali Auto was formed half a year ago merging Taobao Auto and Tmall Auto, which had combined transaction value of ¥40 billion ($6.3 billion) last year, with about 98 percent of the transaction on automotive accessories. The platform provided 300,000 leads last year with about 120,000 units paid online and Ali Auto took in about ¥500 as lead fees per vehicle.
The future of Ali Auto, according to Wang, is offering the so-called 16S service, not only sales, service, spare parts and survey usually found in 4S dealerships but additional services such as accident claim, insurance, rescue, maintenance, tires and parallel import.
Wang believes that the 4S business model is unsustainable because it requires huge upfront investment and OEMs often ensure profitability at the expense of 4S dealerships.
“There is no point in establishing 4S dealerships in the countryside because the population just won’t support that business model,” said Wang. “We hope that 2S dealerships can cover all 2,800 counties and districts across China so that they can provide vehicle delivery and aftersales services.”
Ali Auto’s ultimate goal, according to Wang, is to make sure that the dealerships get more traffic, become more efficient and make more money with lower costs. “Dealerships must become independent entities, rather than controlled by the OEMs,” said Wang.
Wang predicted, based on data from the past year, that 72 percent of new car demand will come from tier-3, -4 and -5 cities in the future while 63 percent of new car demand will come from the post-80s and -90s generation.
“In the next 5-10 years, China’s auto industry will be centered on young consumers, not social elites,” said Wang.
China has more than 40,000 4S dealerships with close to 100 people per dealership and that is both an advantage and disadvantage, according to Song Tao, deputy secretary-general of China Automobile Dealers Association (CADA).
“In our Top 100 Dealer Group ranking to be released later this year, we expect to have more than 7,000 dealerships that will sell 7 million vehicles with revenues of ¥1.5 trillion,” said Song. “But used vehicle business, where there are plenty of opportunities, only accounted for an infinitesimal portion.”
Song predicted that China’s used vehicle transaction volume will surpass 10 million units this year and eventually approach 1:1 in proportion with new vehicle sales.