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Due to slowdown of new vehicle sales market and the amounting pressure of inventory, the dealers successively rendered price reduction as the main promotion means, which caused the drop in profitability of many dealers in 2012. Meanwhile, the fall of gross margin also indicates that the new vehicle sales business has been gradually into the era of meager profit.
In contrast to the depressed new vehicle sales market, the automotive after-sale service and used car sales business presented greater development potential.
At present, the after-sale market has become the main profit origin of auto dealers, and its gross margin is much higher than that of new vehicle sales business. For instance, the gross margin of Pangda Automobile Trade?s new vehicle sales business was 7.28% in H1 2012, while that of its after-sale market reached as high as 34.26% in the corresponding period; Yongda Auto?s new vehicle sales business showed a gross margin of 5.24% in H1 2012, while that of its after-sale business was high up to 43.58%.
At present, the revenue from after-sale service of automobile dealers in China only accounts for 10% or so of new vehicle sales, and the gross margin is roughly 80% of that of new vehicle sales, while the above proportions respectively approximate 30% and 320% in the United States. Referring to overseas experience, the after-sale service will become the most important profit source of auto dealers in China in the future.
Used car market
The trading volume of used cars in China amounted to 2.658 million units in 2007, and climbed to 4.817 million units in 2012, with an AAGR of 12.63%. In 2011 and 2012, the growth rates of used car trade volume in China hit 12.41% and 11.24% separately, much higher than that of new vehicle sales market.
At present, many well-known auto dealers have launched the used car business, and in particular, Zhongda Yuantong has traded nearly 30,000 used cars in the first nine months of 2012, including 5,354 self-operated used cars, rising 9.9% year-on-year. Besides, other dealers like Pangda Automobile Trade, Sinomach Automobile, Dah Chong Hong, Zhongda Yuantong, Yongda Auto, Lentuo Group and Yaxia Auto all possess used car business.
In July 2012, the Ministry of Commerce of the People?s Republic of China issued the Criterion for Appraisal and Evaluation of Used Car (Exposure Draft). It is predicted that the Criterion will be officially issued in H1 2013, and the most crucial evaluation of used car market is expected to be regulated, which will positively bolster the disciplined development of used car market.
The report highlights the followings:
Automobile distribution models, development features of various models, etc. in China;
Progression of auto dealers in China, like quantity, profitability and development features, etc.;
Development of various automobile distribution businesses in China, including the distribution modes, characteristics and development prospects of diversified businesses such as new vehicle, used car, vehicle maintenance, automotive financing and insurance;
Operation, profitability, business development, 4S distribution network and expansion, etc. of 12 listed automobile dealers in China.