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How should Traditional Auto Makers Ride the Wave of E-Commerce?

Date:06-12 14:56 Source:autochina.comnews.cn Authour:Zhu Shiyun

As China’s auto market enters an era of low profit, e-commerce is now an irresistible trend in car sales and service, providing a new solution to some old problems in the Internet age, such as how to make the vehicle fit better with consumer demand, and how to lower cost and improve efficiency in after service. An industry veteran points out that this will mean a profound change in the model of car sales and service model. The linear structure of car maker-dealer-customer will be replaced by a customer-oriented three-in-one structure involving new types of car makers, dealers and customers.

How should Traditional Auto Makers Ride the Wave of E-Commerce?

E-commerce is now an irresistible trend in car sales and service.

Integration between the Internet and the car seems to have entered a dead end when a dealer only earns RMB 26 yuan after selling a RMB 500,000 yuan Audi through group purchase, and sees potential customers being drawn away by early consumption. Despite rapid development in the past three years, no mature operating model has yet taken hold in the capital-driven Internet + car movement. On the sales side, e-commerce providers of new cars are reduced to promoters of clearance sales. On the after service side, O2Os are troubled by thinning-out resources, and worried about the next round of financing. What’s worse, continuing scandals around e-commerce providers of used cars are causing growing concern across the industry. Is it because Internet + car really is a dead end or because we have not found the right approach?

The traditional players in the automotive industry have recently been taking a serious look at the Internet + car model. An industry veteran tells China Auto that Mercedes-Benz, Borgward and a major Chinese automotive group are planning to launch e-commerce platforms for their own brands in the second half of this year or shortly afterwards. In contrast to the current e-commerce providers, their platforms will focus more on after service. A quasi-Taobao evaluation system will be used as an important tool of after service management. Meanwhile, traditional dealers are also making a rapid turnaround. For instance, Wuhu Yaxia Automotive, a well-known regional car dealer group, turned a profit by streamlining its money-losing stores and embracing the Internet in the right way. In 2014, the company suffered a loss of more than RMB 50 million yuan. This year, however, it reported a profit of RMB 12.43 million yuan in Q1 and expects a more than 10-fold increase in mid-year performance to RMB 30.2 to 31.5 million yuan.

As China’s auto market enters an era of low profit, e-commerce is now an irresistible trend in car sales and service, providing a new solution to some old problems in the Internet age, such as how to make the vehicle fit better with consumer demand, and how to lower cost and improve efficiency in after service. An industry veteran points out that this will mean a profound change in the model of car sales and service model. The linear structure of car maker-dealer-customer will be replaced by a customer-oriented three-in-one structure involving new types of car makers, dealers and customers.

Negative comments will be treated seriously

In the past, when an owner was not satisfied with the service of the dealer, the only way to respond was to take short video clips, write long micro-blogs, and hope for a repost by one of the ‘big Vs’ (verified Weibo users who have more than 500,000 followers). Nowadays, the owner only needs to leave the dealer a negative comment. The customer service staff will reply and resolve the issue. As China’s auto market develops into a buyer’s market, car makers and dealers have to look for new ways to put “customer first” into practice in the dimension of the Internet.

Embarking on the road to recovery in China, the German brand Borgward is busy going through the requirement on all auto brands after unveiling its first SUV product BX7: rolling out the dealership network. Borgward plans to set up one hundred dealers by the end of this year. Expanding the network is increasingly difficult today. Borgward must resolve the issue of how to lower cost and improve efficiency of dealers in after service, and improve service quality to retain essential customer groups.

In this regard, Borgward will integrate traditional B2B2C and innovative B2C2B models on the sales side. Concerning after service, Wei Yangchun, Internet Marketing Director of IT Department of Borgward China, told China Auto: “We are looking forward to making a difference in after service.”

How should Traditional Auto Makers Ride the Wave of E-Commerce?

Wei Yangchun said Borgward would launch an official WeChat service account at the end of this year. An owner will be able to make an appointment with specific staff members for after-sales service on the account because he/she is offered a clear view of the idle stations in the dealer store, and the comments on technicians. “It’s like buying a movie ticket online. You can keep track of which tickets are sold at which time.”

At the same time, Borgward is planning to pick up cars from their owners’ homes or have designated drivers pick up and bring back cars to owners within a specified period of time. In this way, the brand will be able to relocate dealer stores and overcome the obstacle that owners can only visit the stores at weekends. “Our dealers will offer variable time-based discounts in each week or on each day. To make full use of the idle time of dealers and avoid taking up the working time of owners, we will offer more favorable rates on weekdays than on weekends.”

Wei Yangchun told China Auto that most customers visit the stores at weekends. On the one hand, they have to wait for a long time for service. On the other hand, the labor cost of dealers is on the rise. As overtime, the labor cost at weekends is twice that of weekdays. To eliminate customers’ concerns about safety and trust, Borgward displays the travel path of the vehicle to the owner on the Internet of Vehicles and provides a transparent virtual shop for customers to check the progress of maintenance on the vehicle.

Borgward will rely on customer ratings to judge the quality of after-sales service. It will allow customers to rate the service by leaving positive comments/negative comments on the WeChat service account and the upcoming official app. The customers can truly vote with their feet. The negative comments, often overlooked in the past, will become a core element in giving the star rating of dealers.

The industry source also revealed to China Auto that a major domestic automotive group is going to launch a similar online after service system. Beijing Mercedes-Benz is scheduled to establish its own e-commerce platform at the end of this year.

In fact, China Auto has always been aware of and focused on the trend of e-commerce in traditional auto enterprises. As early as last June, Li Hongpeng, Senior Executive VP of Mercedes-Benz (China) Ltd. told China Auto that the brand was going to build its own e-commerce platform, prepare new rules acceptable to both car makers and auto dealers, and implement a new model of online management for offline businesses. “In the future, the platform might develop into something like Taobao. Customers will rate dealers on our online platform after each transaction, purchase, and maintenance. They can choose any dealer based on the star rating.”

As well as improving owners’ service experience in its stores, Borgward also wants to establish deeper relationships with its customers through big data analysis. Wei Yangchun told China Auto that Borgward had built a core contact center to store both audio and text messages. The CAC of clients, TCC of the Internet of Vehicles, TAC of dealers, and DCC of WeChat, text, and the app, will be brought together onto the same platform so that customers will be directed to the appropriate service person via the platform whether they are looking for service on phone, WeChat or Weibo, and be provided with consistent answers and solutions.

In the Internet era, auto companies should not only gather customer feedback from their own channels, but also feedback or complaints from online public platforms. According to Wei Yangchun, Borgward has built a big data analysis engine with HANA, a combination of software and hardware provided by world’s leading enterprise application software solutions provider SAP. When it detects customer feedback on public platforms, the engine will extract and analyze the data in real time. The results will be sent to production and after service management departments on a regular basis to improve products and enhance service. “This is being done at the request of manufacturing. They want to understand customers’ needs more quickly from social media and the Internet.” “What customers hate to hear is: “We have recorded the issue and will feed it back to the appropriate department. Please wait.” Wei Yangchun said Borgward’s call center had been divided into detailed groups during the process of construction. A caller will be able to reach the appropriate service person with only one layer of choice after the call is connected. “Rather than tell you the issues has been recorded, the service person will give you a suggestion on the spot, or help you contact the nearest service provider to resolve the problem… 95% of calls can get through to the call center in 20 seconds… We have an internal KPI for the percentage of problems solved .”

According to our industry source, as China’s auto market develops into a buyer’s market, the existing auto sales and service model, formed during a period when product was in short supply, will face enormous changes. “Right now, auto makers dominate everything. In the future, customers will call the shots. The balance of interests and relationships will change. Dealers must focus on customer satisfaction in the future. As a result, 4S stores are going through a transformation. Some should be divided and some closed down. Of course, brand licensing will not disappear. After all, it’s the safest and most secure model for customers. Future competition will emphasize good quality and cost benefits.”

E-commerce of after service

How should Traditional Auto Makers Ride the Wave of E-Commerce?

“After service profits cannot compensate for losses on new car sales,” said a luxury brand dealer to China Auto. Indeed, dealers have come under increasing operating pressure in recent years.

In May, China Automobile Dealers Association released an analysis on the operating results of 15 listed Chinese auto dealer groups in 2015, including GrandAuto, Pangda, Yaxia, Zhongsheng, and Baoxin. According to the report, in the last year, only 6 of all these groups had maintained growth in total revenue. 8 of the enterprises saw falling gross margins, although the overall gross margin stayed at 8.1%, the same level as that of 2014.

New car sales, accounting for most of the profits made by dealers, were not proportional to revenue over the last year. The 15 listed auto dealer groups sold a total of 1.94 million new cars, an increase of 2.05% compared with the same period in the previous year. However, sales revenues stood at RMB 389.2 billion yuan - a year-on-year fall of 6.64%. Only four companies maintained growth. The average gross margin of new car sales fell from 0.55% to 3.26% compared with the same period in the previous year. The average gross sales margin of one individual car was RMB 88,00yuan, down by 27.86% compared with the same period in the previous year. The CADA report indicates that the actual profit margin of car sales was -1.71% on average among the surveyed enterprises.

“Selling cars is unprofitable” is now the norm among Chinese auto dealers. According to a recent media report, an Audi dealer in Sichuan earned only RMB 26 yuan after selling a RMB 500,000 yuan new car through group purchase. Meanwhile, the three German luxury brands have improved sales in China in the first four months of this year.

Faced with growing sales targets from auto makers and suffering under their own operating pressures, dealers must find a new operating model to reduce costs and make money.

It is worth noting that Wuhu Yaxia Automotive, a well-known regional car dealer group in Anhui, made a strong comeback according to its Q1 business report. In 2014 Yaxia suffered a loss of RMB 56.36 million yuan. In 2015 the company swung to a net profit of RMB 15.92 million yuan. This year it reported a profit of RMB 12.43 million yuan in Q1 and anticipates a more than 10-fold increase of mid-year performance to RMB 30.2 to 31.5 million yuan. The report shows that Yaxia’s net profit contribution to its shareholders is up by more than 218.03% compared with the same period last year, thanks to an increase in gross margin on new car sales, gross margin on insurance, financial charges, and gross margin on consultation services.

Yaxia’s transformation strategy has been key to its turnaround. Li Lin, Chairman Secretary of Yaxia Automotive said Yaxia would make a transition to a “unique” auto service provider. As a result, more energy would be invested in setting up an Internet of Vehicles and “Internet+” e-commerce platform that spans the whole industry chain, integrating the strengths of the auto industry chain, and fully establishing an “Internet+” operating system.

To promote internet-enabled business, from late last year Yaxia launched intensive cooperation with internet companies in such fields as driving training, insurance, e-commerce accessory providers, O2O maintenance, and second-hand cars. For example, it has worked with Tuhu, the largest e-commerce provider of auto after service in China, and set up JVs in insurance and finance. It is now the sole partner of Tuhu in the two areas.

Some analysts believe that Tuhu’s online strength will accelerate the growth of Yaxia’s insurance business. With more than 10,000 stores, Tuhu will attract an enormous number of customers to the insurance business. In addition, the gross margin of insurance business will be improved thanks to the partnership with Zuihuibao Ltd., an online insurance company based in Shanghai. It’s expected that Yaxia will make RMB 30 million yuan of profit in the insurance business alone in 2016.

Concerning Borgward, as many customers may choose to use the pick-up service, dealers do not need to set up so many expensive 4S stores in downtown areas. Instead, they can build low-cost maintenance points outside urban centers where the land price is cheap. Borgward also plans to cooperate with Michelin Tyreplus to provide some maintenance services to its customers, while Borgward will provide a quality guarantee. This will significantly reduce the cost of dealer after service.

Whether auto makers or dealers, as market entities, the traditional players are exploring the transformation to Internet-enabled businesses. The trend will have a profound impact on other players in the industry chain.

Our industry source said that the existing after service evaluation model, currently dominated by research firms, might be fundamentally changed as car companies begin managing after service via big data and the Internet and start communicating directly with customers. At the same time, the new trend can prevent car companies from infringing various “red lines” on management in the newly released Anti-monopoly Guide for the Auto Industry. “If they are now to manage their business via the e-commerce model, it will be possible to allow customers to manage dealers, and let customers decide the fate of dealers and make other choices through positive/negative comments. In this way, even if a dealer goes bankrupt, it has nothing to do with us. But one potential problem concerns the issue of a dealer requesting an auto maker to delete negative comments. The auto maker must defend the integrity of its e-commerce platform.”


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