The First Breakthrough of the Automotive Industry's Profit Growth Diversification

By the end of 2007, passenger cars accounted for 71% of car sales, of which the overall proportion of cars has increased from less than 20% in 2000 to the current 53%. After years of development in China's automobiles, the product structure has undergone a fundamental change.

At the end of the year, before the advent of 2008, all auto makers were under pressure from sales targets, or in order to catch up with the sales boom in the last quarter of the year, they continued to drive down prices, from economy cars to mid-to-high-class cars.

Sina Motors, which has the highest click-through rate on the automotive portal website, has been keeping its focus on the price reduction news of "Ming Rui's drop of 6000 and Sagitar's drop of 10,000." At the same time, in the focus news area of ​​Sohu Auto, the information that "the magotan field is reduced by ten thousand yuan" and "the one hundred thousand eight hundred and eighty-hundred thousand yuan model has been downed" has been attracting attractive traffic.

It seems that the entire auto industry is still fighting a price war, although this war has lasted for several years, so it is estimated that the profits of auto manufacturers should become thinner and thinner as Chinese consumers continue to receive benefits.

However, the latest statistics from the China Association of Automobile Passenger Cars show that according to statistics on the previous 11 months, the market size of the auto industry is expected to increase by 22% in 2007, and the profit is expected to exceed 100 billion yuan, which is much higher than the figure. The average market growth rate of China's manufacturing industry.

The seemingly impaired profits have maintained rapid growth. This seems to be a contradictory result. What secret is hidden behind this result?

Car profit differentiation

Rao Da, secretary of the National Passenger Vehicle Market Information Association, believes that the economic benefits of auto companies this year have been greatly improved. The main reason is that the localization rate of new production models of joint ventures has increased significantly. In some joint ventures, the localization rate of the entire vehicle can reach more than 80%. At the same time, more than 90% of the newly-listed models of joint ventures started to localize more than 40%. By the end of 2007, the average localization rate of the joint venture reached about 75%.

According to Rao Da’s analysis, Chinese cars have entered an era of scale expansion. Under the banner of scale, profit growth is logical. However, this answer is obviously too broad. In the era of increasingly fragmented vehicle market, people need more detailed reasons.

According to statistics from the China Association of Automobile Manufacturers, from January to October this year, China's auto sales reached 7.15 million vehicles, an increase of 24% year-on-year, of which commercial vehicle sales were 2.07 million, an increase of 25.1%; passenger vehicle sales were 5.07 million. Vehicles, with a growth rate of 23.6%. "Because November-December is the peak season for automobile sales, we expect this number to reach 8.7 million in the whole year of 2007," said Wang Mingcun, auto analyst of Tianxiang Investment Company.

Behind this sales figure, the profit growth rate of the vehicle industry exceeds 60%, the highest level of profit growth since 2003. “This 60% increase in industry profits includes passenger cars and commercial vehicles, and the growth of passenger vehicles, especially cars, has played a decisive role,” said auto analyst Guo Yu.

By the end of 2007, passenger cars accounted for 71% of car sales, of which the overall proportion of cars has grown from less than 20% in 2000 to the current 53%. After years of development in China's automobiles, the product structure has undergone a fundamental change.

Wang Mingcun believes that in 2005, the proportion of cars was 48.4%. By 2007, this figure had increased by 5 percentage points, which is the fundamental support for improving the industrial efficiency.

With the increase in the proportion of car sales and the composition of the structure, the sales structure of passenger cars has begun to differentiate. In January-October, the sales volume of small, profit-prone vehicles, which had been originally thin, fell. Compared with the same period in 2006, overall sales volume fell 13.6%. Its sales volume in passenger cars dropped to 12%; 1-1.6 litre gold row The volume still accounts for 48% of the sales volume of sedan; at the same time, the passenger car's consumption preference shifts upwards, and the sedan with 1.6-2.5 liters of displacement increases rapidly, while the profit space for car sales mainly exists in this range.

“This is the secret of the overall growth of car profits. On the one hand, the localization rate continues to deepen, and we can continue to support the decline in prices on the basis of maintaining a certain profit. On the other hand, the shift in the preferences of consumers for high-end cars makes this part of the The increase in sales volume has increased, and this part is exactly the backbone of the car's profits.” Guo Yuru said.

Diversification of growth

Wang Mingcun believes that this growth trend in the automotive industry will continue in 2008. However, growth will show a trend of diversification.

In the passenger vehicle sub-sector, the market competition pattern of SUV, MPV and cross-type will be relatively stable. With the improvement of people's quality of life and the corresponding changes in lifestyle, the sales of these models based on individual and family collective outings will be released. At the same time, their cost-effectiveness will be highlighted, and sales growth will be the Chinese auto profit in 2008. The overall growth contributes part of the power.

After several years of rapid development, the competitive landscape of car companies has begun to appear. Individuals and their joint ventures with FAW, SAIC, Dongfeng and Changan as the mainstays have become the main players in the Chinese auto market. However, the concentration of the car market is still relatively low. From January to October 2007, the market share of the top four companies was about 35.6%. The remaining 35.6% of the shares were divided by the remaining dozens of car companies. Companies such as Jianghuai, Great Wall, and Changfeng have entered the field of cars, further exacerbating competition in this area.

If the enterprises are too dispersed, industrial integration will inevitably lead to the emergence of a large-scale auto group that will strengthen the auto industry's scale-based profitability.

"On the one hand, the current automotive industry has spent the blowout period from 2002 to 2003, and companies must rely on brand, R&D strength and scale to win, which makes some companies with relatively weak brands and R&D capabilities weakened by the market; on the other hand, Although the scale of individual auto companies has continued to expand in recent years, the scale of auto companies in China needs to be improved as compared to Toyota and GM’s annual sales volume of more than 9 million units. In addition, national industrial policies also encourage autos. Group mergers and acquisitions integration.” Wang Mingcun said.

In addition to the upcoming large group like SAIC NAC, the self-owned brand sedan will also be one of the major growth drivers of China's auto profits in 2008.

The sudden emergence of independent brand cars. At present, automobile groups including FAW, SAIC, Dongfeng and GAC have all developed their own brand car development plans and gradually implemented them. From January to October, sales of self-owned brand cars accounted for 27% of sales in cars, mainly in the area of ​​economical cars. However, this does not prevent it from becoming a vehicle exporter.

In the first 10 months of this year, China exported 180,000 cars, and the unit price of exports increased by 32% from the previous year to US$11,600. The constant increase in the exchange rate of the renminbi still continues to push up the profitability of the export products of independent brands. This trend will become even more pronounced in 2008.

In addition, with the increasing sales of cars, the profitability of the automotive after-sales service market will also be released. U.S. "Newsweek" and British "Economist" published an article analyzing the profits of the top 10 automotive companies in the world for nearly 10 years. In a fully mature international automotive market, the sales profit of automobiles accounts for about the entire automobile market. 20% of industry profits, parts supply profits account for about 20%, and 60% of profits are generated in its service area.

"The profit of after-sales service will become the main profit growth point for the automotive industry as a whole." Guo Yu said.