While every major global automaker now has — or is trying to establish — a significant foothold in China, there's one significant aspect of western auto retailing that remains a huge frontier in China: the car dealership.
China now is crawling with car brands, some indigenous and many imported from the west, spurring global automakers on a major buildout of manufacturing capacity on the mainland. But China's auto-retailing network to this point is relatively underdeveloped. Many so-called Tier 2 and Tier 3 cities in China still don't have auto dealerships at all, Jim Press, a former Toyota and Chrysler top executive turned consultant, told Automotive News.
But that, like everything else about China's auto market, seems to be changing fast. At the Beijing Auto Show this week, General Motors CEO Dan Akerson announced plans to expand its dealership network in China to 3,500 stores by the end of this year from 2,900 at the end of last year. But is China ready to support the aggressive rollout of local dealers that Detroit has in its sights?
As part of GM's push, for instance, its Cadillac brand is projected to expand from 68 to 120 dealers in China by the end of this year. And Audi plans to rapidly expand its dealership network across China and open stores in several large cities where it doesn't have a presence now. Foreign-owned dealership groups, as well as non-China-based brands, also are sniffing around about the opportunity to buy into the still-burgeoning Chinese market. "This will be a natural place for them to look," Press said. "The opportunities are tremendous."
The "opportunities" include the fact that China is vastly "under-stored" despite the fact that new-vehicle shoppers there already have the world's widest range of automotive choices, with 94 brands and 476 models from which to choose, according to new research by J.D. Power & Associates. That compares with fewer than 40 brands and nearly 100 fewer models in the United States. And now, Ford has hinted that it may create a new indigenous brand in China.
And dealership growth in China will be restrained by the slowing of overall automotive sales there. They're expected to slow to single-digit percentage growth this year from a few years of double-digit growth rates.
Among other stresses that creates is a burden on the profitability of existing car dealerships in China. Dealers reported lower profits from operations last year than they year before, Power said in an annual study.
"Brands need dealers to continue to invest in their market potentials, and China customers increasingly expect more from their dealership experiences," Power noted in a press release. "This puts brands with lower dealer profitability at a disadvantage relative to competitors."