Auto Industry

Dealers in distress

China’s biggest online car sales platform in crosshairs over fee hike

Autohome-w

The English idiom “rubbing salt into the wound” has many equivalents in the Chinese language’s vast vocabulary of ancient phrases. Xueshangjiashuang (adding hail to snow), huoshangjiaoyou (pouring oil on fire) or luojingxiashi (throwing stones at somebody who fell down a well) are some examples. Lately a few of these expressions have been used to criticise Autohome, the country’s largest online classified ad platform for cars. Indeed a host of major vehicle dealers have threatened to boycott the company in protest against a fee hike Autohome has instigated.

The tension started brewing early this month when the Beijing-based company, which helps dealers market their car inventories and after sales services to drivers, raised its membership fee by 20%. It also released two new editions of its listing catalogue that commanded substantially higher advertising rates.

The cost for a company to use Autohome’s ‘luxury’ listing catalogue, for instance, has climbed 20% per annum over the last five years, topping Rmb500,000 ($75,158) as of January, according to the 21CN Business Herald (the service includes a range of data-related benefits deemed essential by bigger dealers).

The moves came at a time when China’s auto market is slowing down. Total car sales in 2018 skidded 6% on the year to 22.7 million units, marking the first annual decline in more than two decades, data from the China Passenger Car Association shows. The waning demand saw nearly two-thirds of car dealers suffer losses last year as of December.

Zhongsheng Group, China’s second largest car dealer, was the first to discontinue Autohome’s services. Smaller rivals such as Pangda Automobile Trade, Yongda Auto, and Wintop Group immediately followed suit. Within days the car dealers’ trade federation had arranged a meeting with Autohome. But the negotiation ended in a stalemate.

“If the market is doing well, a fee increase is understandable. But given the sluggish condition, the rise is in no way justifiable”, said Pang Qinghua, chairman of Pangda, the country’s fourth largest dealer.

Autohome’s bargaining power stems mainly from its ability to generate sales for dealers. Offering comprehensive information about the automotive retail market as well as microfinancing, Autohome attracts at least 37 million potential buyers to its platform on a daily basis. Whenever customers ask for a price quotation, Autohome collects their personal details and forwards them to the relevant dealers.

For authorised dealership outlets in China, also known as the ‘4s channel’, almost 40% of customers are directed from car information websites, according to International Financial News (a news outlet owned by People’s Daily). Autohome, as the most popular platform, accounted for 10-15% of total sales at 4s shops.

“The volume of sales leads generated by Autohome will likely grow by 10% this year. Factoring in a 6% inflation rate and a 15% increase in traffic to the market, the 20% fee hike is just about right”, Autohome’s vice president Wu Tao told Southern Metropolis Daily. The company also suggested that the Rmb25 it charges for each sales lead represents a cost saving of over 80% for dealers that would otherwise have to pursue transactions from scratch themselves.

Since going public in New York in 2013, Autohome has recorded steady growth, with its market capitalisation reaching $8.6 billion by the end of this week. For the three months ending in September, its net profit surged 60% on the year to Rmb681.3 million as net revenue rose 34% to Rmb1.89 billion. The acquisition of a controlling stake by Shenzhen-based Ping An Insurance, which bought more than 50% of the company from Australia’s telecom operator Telstra in 2016 and replaced most of its board, has steered Autohome to diversify away from advertising towards a fuller-service platform encompassing auto finance and (unsurprisingly) motor insurance.

Some observers believe it will take more than a dozen big dealers to make any boycott of Autohome’s service hurt the internet firm.

The difficulty is that dealers are often pressed to engage with Autohome’s platform by the carmakers themselves. “We signed the contract with Autohome at the request of car producers. If we don’t, there are certain offers and discounts we can’t enjoy. Moreover, the fees paid to Autohome are partly subsidised by carmakers,” a dealer told Technology Review, a local zimeiti.

Other analysts think that Autohome’s position is more precarious. Apart from existing rivals such as PCauto, Bitauto and Xcar.com, new entrants such as Dongchedi, launched in late 2017 by artificial intelligence company Bytedance (see WiC437 for more about the owner of news aggregator Jinri Toutiao and short-video streaming site Douyin) are gaining market share. With a focus on video-based content, Dongchedi has accumulated four million daily active users as of November, of which 41% belong to the 18 to 30 age group. The sales leads it generates are already considered superior in terms of customer quality and cost-to-convert versus Autohome’s, reports Sina.com.

With that context, it will be interesting to see who will swerve first in this game of chicken: Autohome or the major dealers…

 


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