China: so close yet so far


During the CADA convention in Chengdu – the panda’s city with the largest mall in the world – I’ve met the extraordinary opportunities of the Chinese market, that astonished also the NADA delegation.

Used Cars? We visited a consortium of 400 independent dealers selling 600 used cars per day (200,000 per year), including Sundays. In a unique location, they display 6,000 used cars (stock rotates 40 times per year), attracting every day 10,000 prospects.

They sell every kind of vehicles: from super-popular Changfeng to the Rolls Royce Ghost, from the Zoyte clone of Fiat Multipla to the Lamborghini Aventador.

Last year in China were sold more than 1 Million luxury-cars (400,000 Audi), plus 100,000 ultra-luxury cars. This explains how at HongMeng Used Car Market every day they collect 13.6 Millions  US$ in cash: thanks to sales of super-premium cars (germans are big hits); the average value of used cars is high: 28,000 US$.

The Director YangJun explains their 4 sales channels: private clients, auctions, franchised dealers and Internet. Yes, despite the latent censorship that controls the Web and prevents access to many sites (in China Google is inconsistent and there is no FaceBook nor YouTube), 40% of their negotiations come from the Web.
F1 Cina-ENG

New Car Sales? At GangHong Auto Group25 dealerships, 2,174 employees, 10 franchised brands, 30,000 new car sales and 245,000 repairs per year – the Director, Mrs. YouYaJun, welcomes us.

YES: in this Group 70% of the managers are women; the dealership is a service company, women better “listen and understand” customers and employees, and better withstand stress.

Please, want to explain that to the… male chauvinist western automotive?!?

The young owner WeikaiLuMBA, habituè of the NADA convention – have butterflies in the stomach: despite the Chinese market is growing 20% annually, also for the Chinese 4S dealers it is not easy (franchised dealers are called 4S: Sale, Sparepart, Service, Survey. BMW is introducing the 5th… Sustainability).

Dealers have a profit on average higher than in the rest of the World, in most cases 10%. This seems to be due to the non-transparent invoice price, and to fees charged for prompt delivery.

This is the reason why a Governative Commission (NDRC) “is investigating whether carmakers were setting a minimum retail price for dealers in China”.

F2 Cina-ENG

Profit opportunities for dealers are still numerous – beyond new car sales: while AutoNation reports (in US) a profit for car financed of 1.381 US$, in China dealers have scarce F&I activities, less than 10% of sales.

In the used car departments there are not certification programs nor OEM’s warranties, which favors the proliferation of non-captive companies that tomorrow will be difficult to unseat.

Internet? Despite censorship, 60% of the prospects come trough the Web.

Even if now salesmen are over-busy in closing “walk-in” sales, for the chinese dealers it’s important to be focused on Leads Nurturing&CRM: these areas will decide their success in the future!

Today it is difficult to open a new dealership in China: multi-billion investments, pharaonic plants, impressive standards (billiards room, fumuoir and whirlpools) are required by some premium-brands.

Things already well known in Europe!

Attending the convention I have heard the CEO of a luxury-brand announcing “Win-Win relations”, “sustainable partnership”: it seemed to be during a dealers event in UE during the… ’90s.

Now, the western dealers must… obey: this is the “We-Win” policy of some OEM.

Long live China!

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  1. Ricardo Oliveira says:

    Congratulations for this remarkable article, Maurizio!
    Objective, informative and very appealing to read.

    In emergent markets, auto-industry is repeating the same volume-focus strategy that obliged it to reinvent its business model in developed markets. Let’s hope that “having been here” helps the industry to better identify right moment to change.

  2. Krishan Kapoor says:

    Thank you for an informative article. China has huge potential for pre-owned as well as new cars. Net marketing and walk-in channels at Dealership are most stimulators. Car Manufacturers are also supporting the dealers so as to have win-win situation with 4S and 5S approach for all.

  3. Ian Hull says:

    A very good overview. Having worked in China for over four years setting up OEM Certified programs and large scale Used Car retail operations in China I can tell you that the market is even more complex than it first appears with numerous obstacles to overcome when setting up a business.

    However, in spite of the obstacles what I did prove is that, if you get the fundamentals right it is a great and highly profitable business opportunity. If you take into account that many Tier 1 and Tier 2 cities are rapidly transitioning from a 1st time buyer to a replacement market and that by 2020 China is likely to be the worlds largest used car market, the people that get in early and get it right will win big.

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