Date:08-24 09:18 Source：International Business Daily Authour：Wu Yue
As the Chinese auto market matures and profits on new car sales fall, the auto aftermarket, which seemed remote five or six years ago, is suddenly just around the corner. The aftermarket provides the greater part of auto profits in developed countries, and is now becoming the chief field of competition in China. Multinational auto part giants have long coveted the Chinese market, and both automakers and dealers know that this is where the real money is to be made. It is encouraging to see that the first systematic fast repair chain financed by international brands is led by a local enterprise. The fact is that international brands don't know how to operate in the Chinese market without local partners.
The sudden slump in the auto market this year triggered a surge of business startups. E-stores begin to sell cars, LeTV and Baidu announced plans to make EVs, all kinds APPs offer door-to-door maintenance services, and there is also the ubiquitous auto We Media - for any long-term player in this industry it has almost become an embarrassment not to be involved in some kind of start up.
However, amid unprecedented "turbulence" in the auto industry, the dealers who have borne the brunt of the problems have mostly remained calm. Why?
We are coming to realize that the theory of "e-stores replace 4S stores" is essentially a fallacy. No e-store has yet got hold of the hottest-selling models from manufacturers, and no mainstream JV or self-owned brand has proactively approached e-stores. In a sluggish market, manufacturers naturally want to sell more cars, but they will never help e-stores to beat their own dealers.
4S stores are also facing heavy pressure. A dealer in German cars told IBD that the pressure on 4S stores is caused by three factors - the rapid slowdown in market growth, the excessively expanded network over the past 10 years of high-speed growth, and the uncertainties arising from the upgrading and transformation of the auto repair industry led by the Ministry of Transport.
"E-stores have a very limited impact on new car sales. A few auto websites have bought up some low-end non-mainstream models, but most cars bought online have to be picked up at 4S stores. APPs don't affect repair and maintenance much either because models in the warranty period still go to 4S stores for service, and high-end and premium car owners trust 4S stores. Therefore, the door-to-door service offered by APPs really just covers some low-end models that have passed warranty, most of which usually go to unauthorized stores for service."
However, as the Chinese auto market matures and profits on new car sales fall (with many models being sold at a loss), the auto aftermarket, which seemed so remote five or six years ago, is suddenly just around the corner. The aftermarket provides the greater part of auto profits in developed countries, and is now becoming the chief field of competition in China. Multinational auto part giants have long coveted the Chinese market, and both automakers and dealers know that this is where the real money is to be made.
International brands swarm to China; confident in local platform Yu Hongjiang, former sales VP of FAW-Mazda and now chairman of the Guangdong-based hks360, recently held a small media conference in Beijing. It marked the official launch of this fast auto repair chain led by a local enterprise with auto parts supplied by six multinational giants and featuring unified worldwide management standards.
Rich in automotive experience, Yu Hongjiang didn't make any overblown claims or threaten any revolution, but he has taken an untrodden path. Based on the successful hks360 auto repair chain he founded, Yu has signed agreements with Marelli, Delphi, Champion, Nippon, AkzoNobel and Continental, taking a solid step towards bringing mature international chain brands into China's auto aftermarket.
According to data provided by Yu Hongjiang, this is the ideal time to develop an auto repair chain in the Chinese auto aftermarket. Take the American auto aftermarket for example. The operating revenues of professional fast repair chains represent more than 50% of the entire industry, leaving 30% to 4S stores and 19% to independent repair businesses.
China now has a car portfolio of 160 million. The value of the aftermarket reached RMB600 billion in 2014 and is expected to reach 1 trillion in 2018. However, the auto repair industry has always been poorly regulated and falls far short of China's status as the world's largest auto producer and seller. There are 440,000 auto repair businesses in China at the moment, including 400,000 or so traditional workshops (mainly unauthorized stores), 24,000 4S stores, and only 3,000 fast repair chain stores, averaging less than 400 repaired cars for each operator. Since an auto repair enterprise has to service 2,000 cars to make a profit, most of the 400,000 traditional workshops are losing money, which is the main reason why unauthorized stores regularly use shoddy parts. In contrast, a 4S store can repair 3,000 cars on average thanks to its brand strength, producing high profitability stemming from its expensive parts and labor.
The Ministry of Transport issued the Guiding Opinions on the upgrading and transformation of the auto repair industry in 2014 to break the auto manufacturers' monopoly of auto part channels and aftermarket prices. The question whether the auto aftermarket should be regulated by market forces or by the administration remains a controversial topic, but it does reflect the fact that the domestic auto repair industry was so chaotic that it was causing serious harm to consumers' rights and interests. Accordingly, the policy to encourage the development of independent repair enterprises created the opportunity for the fast repair chain.
In mature auto markets, the fast repair chain is dominated by multinational auto part giants. "The American auto aftermarket today is what the Chinese auto repair industry will be tomorrow" - this is what multinational auto part giants have long foreseen, and large-scale fast repair chain stores providing cheap and good-quality parts and services will sooner or later become the main business model in China's auto aftermarket. And yet those multinational giants still don't know how to take the first step in China, despite long years of careful observation. One major international brand has been developing direct-sale stores in China for several years, but its operating costs are very high, and the 17% VAT alone can eat up all the profits.
Today six major brands including Marelli have all joined hands with hks360 because the latter has already made successful inroads in China. They are well aware that local enterprises understand best the complicated operating environment and diversified consumer needs in China, and this is the main reason why they have chosen to cooperate with hks360.