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'Driving in the clouds' without sales data
By Jochen Siebert |
December 24, 2012, Monday
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Print Edition
Print Edition
AT first sight, 2012 seems to have been a good year for China's car market, with a year-on-year growth of 8.5 percent in sales of passenger cars as of November, excluding minivans. That compared with the paltry 2.8 percent increase last year, according to the China Association of Automobile Manufacturers.
However, there are several problematic areas that the sales figures don't reveal.
In January, China's car deliveries, both at home and abroad, were higher than production levels, which led to a reduction of inventory at carmakers. From February to September, production rose significantly above sales and inventory piled up to 400,000 units. October was the first month since January where inventories decreased, mainly because production grew by only 2.2 percent from a year earlier.
This stop-go policy adopted by car manufacturers is sending shockwaves through the industrial chain, making call-offs more erratic for suppliers and putting higher pressure on dealers to wage fierce wars to meet pressing sales targets.
The carmakers probably underestimated the weakening of the market in general, but the real problem is that they couldn't see it coming at local levels.
Since January this year, China's carmakers are no longer receiving car registration figures from the government. The data, which used to be sorted by postal code, told the size and shape of the market in each dealership areas. Without information on the number of cars per brand and certain models are registered in the area, car manufacturers and dealers cannot estimate their market.
They also cannot see whether their performance is above or below average, which is especially critical in difficult times when investments have to be made very carefully. "We are driving in the clouds and are unable to support our dealers in the way we could with registration data," commented one representative from a carmaker.
Wild guess
Behind the relentless discounting by dealerships trying to meet targets is the wild guess of their capabilities by carmakers, without reference to the latest registration numbers. Obviously, they guessed grossly wrong in many cases.
With better access to market analysis, both carmakers and dealers could adjust their strategies in a more timely fashion. As sales grow slower, the market could move into a more service-centered direction, and the auto aftermarket would gain more attention.
Like it or not, that shift will happen.
In the medium to long term, car dealers in China won't achieve the same sales growth they used to enjoy. They will have to reduce their dependence on new car sales - which now contribute to 90 percent of their profits, compared with 55 percent in more developed markets - and increase their stake in the business of used cars, maintenance and finance.
But without car registration data, the healthy development of the dealership industry is still at risk.
Car manufacturers expanding their sales networks across China will have difficulties in analyzing market capacity. They might add too many dealers in one region or too few in those with high potential. The current situation certainly makes it harder for carmakers to win new investors for dealership development.
Market research becomes increasingly important in China because there will be fewer white spaces in terms of product and sales area. The country's market for high-level compact car-based utility vehicles, for example, has only 12 competitors this year, but the number for 2018 is expected to rise at least to 23.
As the Chinese auto market forges ahead toward more competition and lower margins for both car manufacturers and dealers, the time is ripe for the government to support them on the planning side. That would be helpful in preventing too many market fluctuations and wrong investments.
However, there are several problematic areas that the sales figures don't reveal.
In January, China's car deliveries, both at home and abroad, were higher than production levels, which led to a reduction of inventory at carmakers. From February to September, production rose significantly above sales and inventory piled up to 400,000 units. October was the first month since January where inventories decreased, mainly because production grew by only 2.2 percent from a year earlier.
This stop-go policy adopted by car manufacturers is sending shockwaves through the industrial chain, making call-offs more erratic for suppliers and putting higher pressure on dealers to wage fierce wars to meet pressing sales targets.
The carmakers probably underestimated the weakening of the market in general, but the real problem is that they couldn't see it coming at local levels.
Since January this year, China's carmakers are no longer receiving car registration figures from the government. The data, which used to be sorted by postal code, told the size and shape of the market in each dealership areas. Without information on the number of cars per brand and certain models are registered in the area, car manufacturers and dealers cannot estimate their market.
They also cannot see whether their performance is above or below average, which is especially critical in difficult times when investments have to be made very carefully. "We are driving in the clouds and are unable to support our dealers in the way we could with registration data," commented one representative from a carmaker.
Wild guess
Behind the relentless discounting by dealerships trying to meet targets is the wild guess of their capabilities by carmakers, without reference to the latest registration numbers. Obviously, they guessed grossly wrong in many cases.
With better access to market analysis, both carmakers and dealers could adjust their strategies in a more timely fashion. As sales grow slower, the market could move into a more service-centered direction, and the auto aftermarket would gain more attention.
Like it or not, that shift will happen.
In the medium to long term, car dealers in China won't achieve the same sales growth they used to enjoy. They will have to reduce their dependence on new car sales - which now contribute to 90 percent of their profits, compared with 55 percent in more developed markets - and increase their stake in the business of used cars, maintenance and finance.
But without car registration data, the healthy development of the dealership industry is still at risk.
Car manufacturers expanding their sales networks across China will have difficulties in analyzing market capacity. They might add too many dealers in one region or too few in those with high potential. The current situation certainly makes it harder for carmakers to win new investors for dealership development.
Market research becomes increasingly important in China because there will be fewer white spaces in terms of product and sales area. The country's market for high-level compact car-based utility vehicles, for example, has only 12 competitors this year, but the number for 2018 is expected to rise at least to 23.
As the Chinese auto market forges ahead toward more competition and lower margins for both car manufacturers and dealers, the time is ripe for the government to support them on the planning side. That would be helpful in preventing too many market fluctuations and wrong investments.
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