Manufacturers warned against overexpansion

PUBLISHED : Wednesday, 25 April, 2012, 12:00am
UPDATED : Wednesday, 25 April, 2012, 12:00am


Carmakers were warned against overexpanding their capacities and dealerships as the number of dealers reporting shrinking profits or even losses was rising.

Sinomach Automobile - the third largest dealer on the mainland - told the Automotive News China conference in Beijing yesterday that carmakers were facing an imbalance between supply and demand. The conference was held on the sidelines of the Beijing Auto Show.

'We expect sales of imported cars to grow by about 20 per cent to one million this year,' said Sun Yong, the company's deputy general manager. 'However, some carmakers forecast growth of up to 50 per cent or even 70 per cent.'

A survey by JD Power and Associates of 1,605 dealers of 38 brands in 59 cities found profitable dealers shrank to 63 per cent last year from 81 per cent in 2010, while 20 per cent saw losses, against 9 per cent previously.

Sun expected profits to shrink this year. 'It is a challenging year as competition has intensified and supply and demand are off balance. Dealers' profits will dip further,' he said.

ADP Dealer Services, which provides management systems to the industry, said the average net profit of car dealers last year was about 5.2 per cent but a 'cold winter is coming'.

Even dealers for luxury brands felt the pinch, said a dealer who did not want to be named. While sales improved last month after a dismal January and February, it came at a huge cost.

'Mercedes, for example, spent up to 800 million yuan (HK$984.3 million) to subsidise prices in a bid to catch up with Audi and BMW, but they didn't cover the entire difference and we had to shoulder half of it,' the dealer said.

Audi's first-quarter sales jumped 40 per cent to more than 90,000 units, compared with 28 per cent at BMW and 20 per cent at Mercedes. All are boosting their production on the mainland.

James Press, of McLarty Automotive Partners, said apart from focusing on new sales, which used to make up to 40 per cent of profits, dealers should expand their source of income by looking into options such as after-sales services or used car sales.

Tan Peng-wei, the Asia president of ADP, said manufacturers should provide more training to sales agents as the industry was still young and most agents focused only on selling new cars.