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Parallel Imports Sail against the Tide: Capturing 1/3 of the Market with the Help of E-Commerce?

Date:06-16 15:56 Source:21st Century Business Herald Authour:Guo Xinwei

Optimism around the development of parallel imported cars in the auto industry can generally be attributed to the following reasons: the size of the auto market in China, the strong buying power of the consumer, and the ability of parallel imported cars to meet customers’ demands for high-quality and cost-effective vehicles.

Parallel Imports Sail against the Tide: Capturing 1/3 of the Market with the Help of E-Commerce?

The general belief was the market space for parallel imported cars would growin the future.

On May 31st in Tianjin, at the First Parallel Imported Car Development Forum, insiders from the parallel import trade, automobile finance and automobile e-commerce conducted discussions over issues on parallel imported cars. The general belief was that the market space for parallel imported cars would growin the future, and the most optimistic even thought it might represent 30% of the total.

”Parallel imported cars are a supplement to normal imports. Despite non-cooperation from automakers and user resistance, under the guidance of industrial policies in China they are expected to find room to develop. As early as the beginning of last year, I believed sales of parallel imports would approach 150,000 cars in 2016. Now considering our current service scale, this number should be doubled. If everything goes smoothly, sales of parallel imports should be able to reach up to 20% of all imports.” So said Tong Shiping, Chairman of the Board of Tianjin Binhai International Automobile Mart, in an interview with a reporter from 21st Century Business Herald on the day of the forum.

Main obstacles come from the interference by manufacturers

Optimism around the development of parallel imported cars in the auto industry can generally be attributed to the following reasons: the size of the auto market in China, the strong buying power of the consumer, and the ability of parallel imported cars to meet customers’ demands for high-quality and cost-effective vehicles.

In addition to all the above, favorable policies are also a contributing factor at the initial stage. In order to push forward the structural reform of the supply side in the automobile field and maintain fair market competition, the Ministry of Commerce and seven other departments jointly issued Opinions on Promoting the Pilot Project for Parallel Imported Cars on March 10th, focused on quality tracking and after-sales services to resolve difficulties in development.

As parallel imported cars are mostly of middle and high-end brands, the amount of money involved and the economic benefit generated are definitely greater than from other imported cars. In a situation where the total sales of imported cars are on the decline, the share of parallel imports will definitely grow.

Statistics show that the sales of imported cars decreased by 24% in 2015, but the percentage of parallel imports sold grew from 8% to 10%. In terms of products, multinational automakers including Mercedes-Benz and BMW moved towards localization, as a result of which the total number of imported cars will fall; more importantly, buyers of imported cars in the future will prefer personalized or even customized ones, which is precisely the strong point of parallel imports.

China started to implement Measures for the Administration of Automobile Brand Sales in 2005. According to this regulation, sales of imported cars should be conducted through general agents and authorized dealers. As a result, the right to price imported cars has remained entirely in the hands of general agents, which has increased the control exerted by multinational automakers and their domestic general agents on the price structure of imported cars.

In the parallel import trade, dealers who previously could make purchases only from general agents are now able to do that directly from overseas, which has broken the monopoly of multinational automakers, prevented them from profiteering, and effectively safeguarded consumer interests.

Meanwhile, as multinational automakers are affected by parallel imported cars, the balance of interests of imported cars will definitely be readjusted. Therefore, the way ahead for parallel imports is not going to be easy. According to Zhang Zhong, Chairman of the Board of Tianjin Hitone International Corporation, who has years of experience in the parallel import trade, the main obstacle that currently holds back the development of parallel imports is interference by manufacturers. In order to restrain the development of parallel imports, manufacturers have reduced the entire supply, especially to the Middle East.

In addition some manufacturers have even changed the engine displacement to force parallel importers to pay higher tariffs, and thereby hinder their development. Zhang Zhong cited an example - before the displacement change, companies’ comprehensive index of tariff for less than 3 years was 66.19%, but after the displacement change, the index increased to 95%. Faced with powerful multinational companies, insiders call for more help to the industry from government departments.

At present, potential buyers’ biggest concern about parallel imported cars is the lack of after-sales services, which is also attracting growing attention from the industry. Only when after-sales problems are properly resolved can the parallel import business meet growing demand in the future and achieve sustainable development. The Opinions has already specified 35 pilot companies within the free-trade zone who should undertake after-sales responsibilities, but how to fulfill them still remains a great challenge.

Therefore, in order to open market space and achieve growth, parallel imported cars still need to overcome two barriers – interference from manufacturers on the supply side and the concern of the customer on the demand side.

Top 20 dealership groups are preparing to engage in parallel import business

As an emerging sales model, e-commerce has had an impact on all aspects of the traditional sales model. However, as a car is a high-value commodity for which a buyer will want hands-on experience before purchase and secure after-sales services, it remains to be seen whether it is a suitable item for e-commerce sales.

Otherwise, e-commerce appears to be a natural fit for parallel imported cars. With its ability to attract attention, the internet can not only provide parallel importers with badly-needed customers, but also achieve services like reliable quotations, trilateral settlement and after-sale services. For parallel imports, with relatively small sales and geographically scattered demand, e-commerce might prove to be the sales model with the lowest cost and the highest efficiency.

At present, few customers are willing to pay their deposits and buy parallel imported cars online. Fu Jianfei, CEO Assistant of Bitauto Holdings Limited, told 21st Century Business Herald that there were indeed some issues in the development of the parallel imported car market on the customer side, and the biggest issue lies in concern about after-sale services and warranties.

Bitauto believes that in the e-commerce model, the contracting parties should be the dealer and the end customer. What auto e-commerce companies like Bitauto should do is integrate all kinds of resources and operate online to optimize offline payment collection, financing, and access to after-sales services. Their services should extend to vehicle introduction and evaluation in the early stages of the purchase. The process is called market development. Therefore, Bitauto aims to integrate and supplement resources to make the existing business models and industrial chains more smooth and transparent, and provide third-party service functions.

The demand for parallel imported cars is small but widely distributed geographically. Therefore, we need a platform to collect and redistribute cross-region purchase information throughout the country. Whether we see an e-commerce company as a challenger or a partner, e-commerce will soon penetrate the field of parallel imported cars.

For the moment, parallel import is still a pilot policy implemented within the free-trade zone. The import of parallel imported cars in Tianjin Port in 2014 accounted for 74% of the total volume in China, and in the period from January to April this year it even reached 83%. Due to restrictions by multinational automakers and a number of other reasons, large dealership groups in China have not yet dipped their toe in these waters.

However, according to industry insiders, dealers ranking among the top 20 in auto sales in China are now preparing to enter the parallel import business. Once they have completed their preparations and integrated the power of the internet, the industry landscape for parallel imported cars will probably go beyond our imagination.


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