Summary of the Key Points
The domestic car market in 2026 is facing a severe situation: The annual sales forecast has plummeted from a 1% decline at the beginning of the year to a 11% decrease. Dealers are struggling with high inventory levels, and both revenue and profits have dropped significantly, with more than half of the top 500 dealers in the industry experiencing losses. The traditional 4S dealership model has become ineffective due to issues such as price wars and overstocking. As a result, many dealers are shifting their focus to new energy brands. However, this transition comes with challenges, including the pressure from direct sales models on profits and difficulties in adapting their operational systems. Only those dealers who can adapt to the new energy market will survive in this reshuffle.
The Chilling Downturn in the Car Market
The bleak outlook for this year's car market is evident in the industry forecasts. The China Association of Automobile Manufacturers (CAAM) has revised its sales forecast for 2026 from a 1% decline to a 11% decrease, which Cui Dongshu described as a “rare and significant adjustment in history.” Dealers, being on the front line of car sales, are feeling the pressure firsthand. In April, the inventory warning index reached 62.1% (with a threshold of 50%, indicating excessive inventory that cannot be sold), up 2.3 percentage points from the same period last year and a 4.6% increase month-on-month. The inventory coefficient also rose to 1.89 (compared to around 1.5 normally), meaning dealers will need 1.89 months to sell all their inventory, tying up all their funds. In simple terms, there are more cars being produced than sold, leading to piled-up inventories and a lack of cash flow.
The Top 500 Dealers Facing a Tough Winter
The list of the top 500 dealers released in May reflects the dire situation in the industry:
- Overall Revenue Decline: The total revenue of these dealers decreased by 8.82% year-on-year to 1.72 trillion yuan.
- Widespread Losses: More than half of the dealers are in the red, with the threshold for inclusion on the list dropping from 5.7 billion yuan to 4.897 billion yuan (a 10% reduction).
- Even the Leaders Are Affected: China Automotive Holdings, which had topped the list for five consecutive years, saw its revenue decline by 2.21%, and its used car business plummeted by 19.4%. Yongda Automobile, which focuses on luxury and new energy vehicles, fared even worse, with a 13.9% drop in revenue and almost a 96.1% decrease in gross profit from new vehicle sales, resulting in a net loss of 347 million yuan and a drop in ranking.
The figures for 2025 are even more concerning: Only 44.3% of dealers met their sales targets, while 23.5% were profitable, and 55.7% suffered losses. The more cars they sold, the thinner their profits became, with new vehicle sales barely covering costs.
Why Are Dealers in Such Trouble?
The root cause lies in the fact that the traditional 4S dealership model is no longer suitable for today's market:
1. Price Wars Leading to Losses: Car manufacturers engage in price wars, driving down terminal prices. Often, the cost of purchasing cars from dealers is higher than the selling price, and any rebates from manufacturers are not enough to cover the losses.
2. Overstocking Strangling Cash Flow: Manufacturers force dealers to take on excessive inventory, which, combined with rising financing costs, puts significant pressure on their cash flow.
3. The Old Profit Model Is No Longer Effective: In the past, dealers made profits from selling a large number of new vehicles and receiving rebates, as well as from after-sales services. However, with new vehicle sales generating little profit and after-sales services struggling, this model is no longer viable.
Dealers Seeking Salvation: Moving Away from Fuel Vehicles to New Energy
Since the old approach is no longer working, many top dealers are making the switch:
- Closing Fuel Vehicle Stores and Opening New Energy Ones: Approximately 5,000 4S stores closed in 2025, with most transitioning to new energy brands. For example, the largest Audi store in Beijing became a Huawei Xingjie dealership, a Mercedes-Benz store in Jinan became a GAC Qijing dealership, a BMW 5S store became a Tengshi or Fangchengbao dealership, and China Automotive Holdings' Toyota store became a Geely Galaxy dealership.
- New Energy Vehicles Are More Profitable: Data shows that new energy dealers account for 42.9% of profits, compared to only 25.6% for fuel vehicle dealers—almost twice the difference. Many dealers continue to sell old brands while also focusing on new energy ones; some more aggressive dealers have completely abandoned their old brand offerings.
The Transition Is Not as Simple As Changing a Signboard
The shift to new energy vehicles is not without challenges:
- Pressure from Direct Sales Models: Many new energy brands use direct sales models, giving manufacturers control over pricing and customer acquisition. Dealers are limited to displaying and delivering vehicles with no bargaining power, resulting in lower profits.
- Operational System Adaptation: The maintenance of electric vehicles and the provision of intelligent infotainment systems require different skills and processes than those for fuel vehicles. Traditional dealers often struggle to meet these new requirements, leading to a poor customer experience.
- Opportunities in After-Sales Services: Dealers who can adapt to these changes can thrive. For instance, China Automotive Holdings' after-sales services saw a 4.1% increase, with new energy maintenance and charging infrastructure becoming significant sources of profit.
In summary, the current困境 of dealers reflects the end of the old model and the emergence of a new one. Only those who can quickly adapt to new energy vehicles and provide quality services will survive in this market reshuffle.