Selling luxury cars not profitable anymore? Dealers with gross margins of less than 5% still make $10,000 per car

Economic Observer? Reporter? Zhou Ju? China's auto market five to sell luxury cars mainly dealer group, three performance decline, and by the rating agencies to lower the target share price, the market downturn environment, even high profit luxury cars can not guarantee the profitability of these dealers?

Data from the China Automobile Dealers Association shows that the cumulative sales of new cars by luxury brands in 2019 totaled 3.13 million units, up more than 12 percent from a year earlier. However, among the five dealerships representing Harmony Auto, Zhengtong Auto, Meidong Auto, Yongda Auto and Guanghui Baoxin, which mainly operate luxury and ultra-luxury brands (with luxury car sales accounting for more than 60 percent of total sales), only Meidong Auto and Yongda Auto have achieved double growth in revenue and profit.

In fact, this lackluster performance began to appear in 2018, such as Guanghui Baoxin's revenue increase in 2018, while Harmony Auto saw a double-dip in revenue and profit. In the earlier 2017, the above five listed dealers revenue and profit also maintained an upward trend. And the situation in 2019 shows that along with the overall downturn of the car market, dealers who mainly operate luxury cars are also in the midst of uncertainty.

Industry believes that the performance of dealers selling luxury cars has fluctuated in the past two years, mainly due to the downturn in the domestic auto market, resulting in increased competition, especially the "price war," resulting in the prices of luxury cars continue to dip. Data released by the China Association of Automobile Manufacturers shows that in 2018, the price of luxury cars in the passenger car segment market fell the most, the annual rate of decline reached 10.8%.

In the face of thinning profits, several dealers have begun to further strengthen after-sales service sales, as well as value-added businesses such as finance, insurance, leasing, and used cars, on top of taking care of the new car sales business, in a bid to broaden their profit sources. Meanwhile, they are also stepping up their authorization and channel layout in their old business of auto sales.

Is selling luxury cars really unprofitable?

In 2019, Harmony Auto saw an increase in revenue but not profit, Zhengtong Auto saw a double drop in revenue and profit, and Guanghui Baoxin also saw a slight drop in sales and revenue. But the unfavorable situation of these three dealerships was only caused by the decline of the luxury and ultra-luxury car sales business for Zhengtong Auto, but not for Harmony Auto and Guanghui Baoxin.

Harmony Auto's 2019 revenue rose 18.6 percent to 12.6 billion yuan, but its net profit was only 526 million yuan, down 23.76 percent from a year earlier. However, excluding the impact of independent aftermarket companies and Byton Motors, Harmony Auto's profit from its 4S dealership business was 489 million yuan, up 47.4 percent year-on-year. Harmony Auto's "other income and gains, net" for 2019 was 530 million yuan, down 43.7% year-on-year, which is believed to be affected by the delayed delivery of Byton cars. In terms of its main business, Harmony Auto's profit in 2017 had already turned back to positive from a loss.

And Guanghui Baoxin's decline was due to a decrease in total sales. in 2019, Guanghui Baoxin's annual sales volume of 111,000 vehicles fell 1.6% year-on-year, and its revenue edged down 1% to 36.46 billion yuan, a drop slightly smaller than the decline in sales volume. That corresponds to a sales mix that shows up as 83,600 units sold for its luxury and ultra-luxury brands, an increase of 823 units from the previous year.

Chengtong Auto's full-year revenue was 35.1 billion yuan, down 6.2 percent year-on-year, while its profit was 767 million yuan, down 38.9 percent year-on-year, mainly due to a decline in sales volume and a decline in per-vehicle profit. ZhengTong Auto's cumulative sales of new vehicles totaled 103,000 units in 2019, down 8.3% year-on-year; among them, sales of luxury and ultra-luxury vehicles totaled 82,000 units, down 5.4% year-on-year.

Zhengtong Auto's gross profit on auto sales in 2019 fell 41% to 1.132 billion yuan, indicating that its terminal price is significantly lower. Some institutions analyze that Zhengtong Auto 2019 short-term debt maturity pressure, in order to cope with the liquidity pressure, the company has adjusted the new car sales business to quickly replenish the liquidity gap.

Harmony Auto released its 2019 financial results three days later, China Merchants Securities (Hong Kong) lowered its target price for Harmony Auto by 16.3% to HK$3.6; on April 2, CICC lowered its target price for Broadway Baoxin by 29.3% to HK$1.30; on April 3, Xiaomo released a research report that lowered its 2020 and 2021 earnings forecasts for Zhengtong Auto by 24% and 27%, respectively. and lowered the target price to HK$1.4.

In addition to the above three decliners, Meidong Automobile and Yongda Automobile realized double growth in revenue and profit. Meidong Auto's 2019 revenue of 16.2 billion yuan, up 46.5%; net profit of 560 million yuan, up 53.4%. And over the three-year period from 2016 to 2018, Medon Auto's net profit has grown 48.0%, 77.6%, and 30.4% year-over-year, respectively. Yongda Auto's 2019 revenue was 63.8 billion yuan, up 13.3% year-on-year, while net profit was 1.569 billion yuan, up 18.4% year-on-year.

The industry believes that the continued rapid growth of Midas Automotive is due to its excellent product portfolio and the implementation of the "one city, one store" strategy. The only luxury and ultra-luxury brands operated by Midas are Porsche, BMW, Lexus and Audi. On the other hand, Yongda Auto is known for its multi-brand and multi-outlet layout, with 246 outlets*** open and authorized to open as of 2019.

Gross profit margin did not exceed 5%

Affected by many aspects, the main luxury and ultra-luxury brand dealers have ushered in the fact that the profitability of the sales business declined is no doubt. For example, ZhengTong Auto's 2019 gross profit margin on sales of luxury and ultra-luxury automobiles was 4.3%, a year-on-year decline of 2.4 percentage points. And in terms of overall sales gross margin, in addition to Meidong Auto reached 5%, the remaining four are 4% and below and weak growth, the lowest of which is Guanghui Baoxin, only 2.3%.

It is worth noting that, despite the decline in gross profit margins of some dealers, if the profit is divided by the number of new cars sold, a rough calculation of the consolidated profit per car, the results show that the consolidated profit of some dealers per car is still at a high level. Among them, the highest comprehensive profit per car is Harmony Motors, 16,000 yuan / car, followed by the U.S. East Auto, 11,300 yuan / car, the rest are below 10,000 yuan / car, the lowest Guangxin Bao Hui, 5,608 yuan / car.

In addition, the dealers' profit margins on after-sales service and value-added services such as finance all showed impressive earning power. All five dealers have after-sales service gross profit margins of more than 43 percent, with the highest being 46.37 percent for Yongda Auto. In addition, Yongda Auto's gross profit margin for its auto finance business reached 67.5 percent, and the gross profit margin for car leasing reached 25.4 percent.

It is precisely for this reason that dealer groups have increased their layout in after-sales and value-added services in 2019, and some dealers have even spun off these segments for listing. Among them, Harmony Automobile has proposed to spin off the after-sales service of the "Harmony Repair" fast repair chain brand in 2019, and there is a plan for independent listing. At present, "Harmony Repair" has 80 chain outlets in China. With 80 chain outlets in China, Harmony Auto's after-sales service revenue was 1.68 billion yuan in 2019, up 32% year-on-year. Meanwhile, Harmony Auto said its investment in new energy vehicle Byton Auto also has plans for an independent listing.

Chengtong Auto, on the other hand, is spinning off its finance company, Dongzheng Auto Finance, for greater growth in 2019. Dongzheng Auto Finance reached 10 billion yuan in financial loans in 2019, up 18.7 percent from a year earlier. However, in terms of profit, Dongzheng Auto Finance, which just went public, saw a 14% drop in profit to 389 million yuan. Yongda Auto, on the other hand, has set up an independently operated "Yongda Used Car" retail chain brand, taking used cars as a new profit support. 41,300 used cars were traded by Yongda Auto in 2019, a year-on-year increase of 10.8 percent.

In addition to value-added services such as after-sales services, accelerating the layout of new energy vehicle channels has also become a ****same choice for dealers of major luxury and ultra-luxury brands. Harmony Automobile said the company in 2019 focused on new energy vehicle sales Harmony Wisdom from the listed company spun off, and the development of multi-brand new energy vehicle authorization. 2019 Harmony Automobile in 2019 in addition to the Bytom automobile, but also obtained the Guangzhou Automobile, Zero Run, Weimar, Jianghuai, Hezhong, Tianji, AIC, including seven new energy brand authorization, in the operation of the store 58.

In addition, Yongda Auto strengthened the promotion and sales of new energy vehicles of authorized brands. Yongda said in its financial report that the company maintains communication with other new energy vehicle brands such as Xiaopeng, Lutus, Baiteng, and Sky, and has been authorized by Xiaopeng and Lutus, Baiteng, and maintains communication and cooperation with Tesla and Azure, which have adopted a direct sales model. Yongda Auto's 2019 new energy vehicle sales of 9,023 units, up 33.7% year-on-year? , and 4.6% in overall new vehicle sales, up from 3.8% in 2018.

Revenue from new car sales, for now, remains the main source of dealership revenue. Revenue from new car sales of the five dealerships mentioned above all accounted for more than 80% of the total revenue, with the highest percentage being that of Meidong Auto, at 88.73%. The lowest was ZhengTong Auto at 81.3%. Based on this, after-sales and value-added business has more room for development. Despite the decline in gross profit margins of some dealers, the comprehensive profit of dealers' single car is still at a high level, for example, the gross profit of Harmony Auto's single car is 16,000 yuan per car.

This article comes from the author of the automobile home car, does not represent the views of the automobile home position.