After-sales services set to boom
With the mainland car market now in the slow lane after two years of explosive growth, industry players who have invested in after-sales networks are set to reap the benefits of the millions of new cars on the roads that now need repairing and cleaning.
The after-sales market - which includes repairs, insurance and detailing - is more profitable than selling cars, with margins of 50 to 70 per cent compared with 15 to 30 per cent on vehicle sales.
Mainland car dealers like Dah Chong Hong have been busily acquiring private workshops and garages as rising car prices, fierce competition and slowing demand squeeze margins. Motormech, a car repair chain under DCH Holdings, opened its first store in Dongguan last year and expect the number to grow to 10 this year.
China Zheng Tong Auto Services, a listed Hubei-based dealer for Mercedes and Jaguar, acquired three dealerships last year, which will 'enable the breakthrough development of the after-sales service business'.
Even smaller enterprises want to take a bite of this lucrative sector. HKS Auto Holdings, which owns a car repair and detailing chain in Hong Kong, teamed up with a US-based car servicing group and wax producer NTI last May in the hope of becoming a leader in the mainland's servicing sector.
'Cars sold in the last three years are getting old now, providing opportunities for car repairers,' said HKS chairman Ringo Lee Yiu-pui. 'Meanwhile, buyers do not want to pay sky-high fees for their ageing cars and yet they will not leave them in the hands of roadside garages, so there is room for repair chains to grow.'
The company plans to triple the number of outlets on the mainland to 15 by the end of this year and expects growth to accelerate further over next three years.
'We will find partners in major cities such as Guangzhou and Dongguan to open franchise stores for us, and our goal is to open about 100 outlets every year until 2015,' Lee said. 'Our franchisees invest in the stores while we provide training, products and management supervision.'
While industry players geared up for the next round of competition, Lee said they all appeared to have a clear idea of their own functions. Dealerships, for example, would continue to provide repair services for new cars, while sizeable repair and maintenance chains like Motormech would serve older moderate to high-end cars. Companies like NTI would specialise in detailing services, which covers cleaning, waxing and air-conditioning repair.
Investors would be looking closely to see who would be the winner of this new round of battle.
Sales of luxury vehicles enjoyed better growth than the overall passenger car market, which grew only 5.2 per cent last year, compared with 33.2 per cent in 2010 and 42 per cent in 2009. According to the Ministry of Public Security, car ownership reached 106 million last year, out of an urban population of 691 million.
The number of cars industry experts expect will be sold on the mainland each year by 2020, twice the number in the US this year