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Will Audi Miss a Historic Opportunity in China by Giving Up the Cooperation with SAIC?

Date:19Hours ago 16:17 Source:未知 Authour:Sun Yong

The “SAIC-Audi Project” has been a hot topic in the media for three months, and recently there has been further news. On February 16th an Audi Dealers branch of CADA (China Automobile Dealers Association) was established in Sanya. At the inaugural meeting, the FAW-VW Audi dealers issued the "Sanya Declaration", saying that until the goal of selling 1 million cars by 2020 is realized, they will object to any Audi proposals to build new partnerships and new sales networks in China.

It is still uncertain whether Audi will accept the association’s five terms, including the above statement. But if it does, it means the “SAIC-Audi Project” will be shelved, and Audi will probably miss a historic opportunity in China.  

What is this historic opportunity? It is the opportunity to lead the development and reform of China’s auto market in the mobile Internet era. Looking back, we can see that Audi made such a success of its business in China precisely because it seized two other historic moments in the Chinese auto market at the end of last century: first, when the Chinese authorities changed their official vehicles from imported to domestic cars, Audi took the opportunity to become the leader in the official car market; second, when car sales started to rely on the market rather than planned distribution, FAW-Audi, GAC-Honda and SAIC-GM together opened a new 4s-store era.

Since then, eighteen years have passed and the Chinese auto market has experienced tremendous changes. First, a buyer’s market has formed, and the times have gone forever when carmakers could accrue high profits by controlling resources; second, private cars have become the biggest part of the market by some margin, and with China continuing to impose strict controls on official car use, the proportion of official cars will fall further. At the same time, the younger generations who grew up in the Internet age are now becoming the mainstream car buyers.

In this context, it is inevitable that Audi’s heavy-asset-based 4s stores are losing money. In the “Sanya Declaration”, FAW-VW Audi dealers clamed that they lost 28 billion yuan from 2014 to 2016. This number may be a little exaggerated, but it is true that they really have suffered huge losses. Two factors have led to this situation: first, they invested too much in opening these stores, each of which cost 70 to 80 million yuan on average and sometimes up to a hundred million yuan; second, with few hot selling products in hand, dealers are forced to rely on vehicle maintenance as their main source of income, which falls far short of covering their costs.

Audi is not the only brand to have encountered such problems. Mercedes Benz and BMW have been there, too, but the difference is that these two carmakers launch new products much faster and have more SUVs than Audi, so they can make money by selling new cars and even raise the prices of some individual models. And with unexpected market growth, they have managed to survive the storm. However, as time goes by, their heavy-asset-based sales model will put them in the same position as Audi again.  

So how do we change this situation? Here comes the new historic opportunity – in this new mobile Internet era, a new business model has to be adopted. I can’t tell exactly what this new model is going to be like, but I’m sure it will have two features – rapid iteration and light assets. The former means that products have to be updated fast, because in the future, cars are sure to become the kind of popular consumer goods that will win market share through design and technology; the latter means that the sales service assets should be light, and it is becoming a trend that online and offline businesses will be combined and sales will be separated from services.

Having led the Chinese luxury car market for such a long time, can Audi still rely on FAW-Audi and its dealer system to achieve the transformation from the traditional model to the modern one? My answer would be negative, because tradition always imposes great inertia - Wangfujing Department Store will never be the same as Alibaba and Gome, and Suning will never be like Jingdong. Besides, a great number of Audi dealers are focused on stemming their losses, and do not have the scope to engage in innovative moves.

Working with SAIC would give Audi another opportunity to create a new model, whether in product design and development or in sales and services. It might even take the lead in the Chinese auto market again, as it did eighteen years ago. Bear in mind that SAIC has already led the way in many areas like new energy vehicles, cars on the internet, and after-sales service innovations.

Should Audi have had the foresight, it should have talked with SAIC about working together five years ago. At that time Audi dealers were still profitable and would not have raised the strong objections they have raised today.

Now that Audi has decided to work with SAIC, it is actually doing the right thing at the wrong moment.  

Will the management of Audi be wise enough to adjust for this error and continue to follow the right path? Let’s wait and see.

 

(The author is currently President and CEO of Know-How Education Ltd. Having been working in the auto media for 12 years, he used to serve as Editor-in-Chief of the Economic Information Daily - Automotive Weekly under the Xinhua News Agency and Deputy Editor-in-Chief of the China Auto News under People’s Daily. He also worked for automobile companies for 10 years. He used to serve as Member of of the Chery Automobile Management Committee and General Manager of the sales company, Deputy General Manager and General Manager of Commerce Department of Nanjing Fiat and Director and Deputy General Manager of Sinomach Automobile Co., Ltd. (China Automobile Trading Co., Ltd.))

 


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