TANGSHAN, Hebei – Pangda Automobile Trade Co., Ltd., a large car distributor in China, announced a plan to invest in car leasing and e-commerce platforms, reported National Business Daily.
Pangda said that it will raise no more than ¥3 billion ($483.3 million) for automobile financing and leasing business, Internet service platform, premium car stores and liquidity.
A sum of ¥1.5 billion will be raised for the company’s subsidiary Pangda Leye Leasing Co., Ltd. to further expand its automobile financing and leasing business. When the investment project is completed, the subsidiary’s average operation revenue will be more than ¥960 million and average net profit over ¥360 million in the upcoming three years, according to Pangda’s estimation.
For the Internet service platform, which is comprised of an e-commerce website and telematics, Pangda plans to raise ¥560 million, of which ¥300 million will be invested in hardware equipment and software for the e-commerce website and its promotion. Both new cars and used cars will be sold on the website. The rest ¥260 million, as planned by Pangda, will be invested in promoting the telematics project, maintaining hardware and upgrading software to improve the company’s telematics business.
Automobile financing service and aftersales service are main sources of profits of dealers in mature markets. Gross profit generated from these two types of services is much higher than new car sales. Pangda aims to transform its profit driver from new car sales to the two types of services through investment expansion.
The profitability of new car sales has been declining due to fierce competition in China, posing a challenge to all distributors in their transformation efforts.
According to Pangda’s initial plan made in August 2013, the distributor would raise no more than ¥3 billion and ¥2.4 billion of the money were expected to be used to repay bank debt. The current revised plan of Pangda shows that traditional automobile dealers are embracing new business models in the Age of Internet and speeding up efforts to transform operation pattern.