29 June 2017 By Partner at PwC
Compared with 2014 and 2015, the Auto Market continues to recover in 2016, which lays a good foundation for Auto industry development in 2017.
In 2016, the implementation of favorable industrial policies have infused new vigor and vitality to the auto industry. Inventory pressure was relieved to some extent, which greatly improved dealers' operating circumstances. However, the constant high financial leverage still kept the industry credit security at a low level, and financial institutions maintained credit doubt due to dealers' high capital risk.
TIn view of the present situation of China’s Auto Market, we believe the market will move in the following direction:
Industry Development Trend: Growth of vehicle sales might slow down.
The 2017 GDP growth rate is estimated to be 6.7%, slightly lower than that of 2016. Both the macro-economy and the residents’ income are unlikely to realize notable increase, so the auto market is not expected to grow as much as it did in 2016. Furthermore, favorable industrial policies were amended to offer less attracting discounts to consumers. Lastly, the government is determined to take imperative actions on environmental protection, which would somehow hinder the development of the auto industry.
Dealer Innovation: Automobile dealers took initiation in business transformation, and polarization became apparent across the distribution channel.
There are increasing number of M&A activities within the auto market. Competitive and large-scale dealer groups acquire less competent ones so as to absorb more 4S stores and customers. This further exacerbates the poor operating circumstances for small dealers. Meanwhile, dealers have been proactively seeking for new profit points, such as vehicle maintenance and traveling. Finally, as the Administration of Automobile Brand came out in April, the relationship between the manufacturers and dealers would become more balanced, hopefully achieving a win-win situation in the near future.
Dealer Financing Tendency: Due to different market performance within brands, regions, and dealers, financial institutions should continue improving risk management.
Due to the varied management abilities of different dealers, some dealers still bear considerable capital risk with high financial leverage. Responding to the current circumstance, financial institutions have been proactively seeking for advanced risk management tools, such as introducing Fin-tech to the traditional risk management.
Auto Financing Market Change: Financing products and services keep to be enriched and diversified, and blue ocean market remains to be tapped.
Clean-energy vehicle has become a focused area in the auto industry as it facilitates consumption pattern improvement and environment protection. Furthermore, the market penetration rate for second-hand vehicles is only 3% or so, which still stays at a low level compared with more matured auto market in the world. As relevant regulations and laws are being constituted and adopted, financial institutions would get more involved in this field. Finally, parallel import vehicle market has been growing steadily in recent years. Commercial banks are expected to provide full service package covering both internal and external trade.