If having confidence is golden was the key message at the 2015 China Automobile Dealers Industry Convention, then maintaining and solidifying that confidence certainly was the core message at the 2016 event.
Some 2,000 people from auto dealers and related service providers large and small attended the event organized by China Automobile Dealers Association (CADA) held in Zhuhai, Guangdong Province on November 9-11.
The biggest difference for the event compared to the previous year, besides a location change, was that it was held in an entirely different market environment: while the 2015 event came on the heels of weak summer months due to the stock market crash and was just over one month into the start of a policy that cut vehicle purchase tax for 1.6L and below passenger vehicles in half, last year’s event arrived after a strong Q3 and start to Q4 but purchase tax policy was about to expire in about a month and a half (the Chinese government later ended up extending the tax policy for another year but at a lesser discounted rate of 7.5 percent instead of 5 percent).
The mood I sensed at last year’s event was anxiety, anxiousness and pessimism, unlike the previous when it was optimism and anticipation.
Are the good times coming to an end soon?
One of the live surveys conducted at the event asked attendees how much the market will grow in 2017 and more than 70 percent of the respondents picked the choice of “5 percent or below.” The State Information Center (SIC) gave three possible growth scenarios for passenger vehicle sales growth in 2017: zero growth if the policy does not continue, 4.4 percent if it continues but at a lower discounted rate of 7.5 percent rather than 5 percent and 9 percent if it continues as is.
The longer term prospect for the industry, according to SIC, is that potential for growth remains over the next 10 years, with growth about 1-1.3X the GDP growth during the 13th Five-Year Plan period (2016-2020) but falling below GDP growth during the 14th Five-Year Plan period (2021-2025).
What should the dealers do to confront the short- and long-term challenges? The same things that have helped them get to where they are today, according to CADA President Shen Jinjun.
Those things are simply a transformation of how they conduct business, such as moving from making a profit (falling) by selling vehicles toward better management of customers, services and improving customer satisfaction, to improving OEM dealer relationship.
Shen believes that the industry has simply transformed into a buyer’s market featuring both new car purchases and used car transactions, like the developed automotive markets of the west. The real internal drivers of growth, according to Shen, will be financing services and used car sales, rather than preferential policies.
Shen is right. Preferential policies will end sooner or later and dealers and OEMs must confront that reality earlier than later. Those that embrace the internal drivers and innovative new business models certainly will be in the driver’s seat regardless of how policies change.