Summary of Key Points
The dealer networks of traditional luxury car brands (such as Audi, Mercedes-Benz, and BMW) are undergoing a significant reshuffle: what were once lucrative franchises have become a source of trouble, with many dealers opting to withdraw from the market or switch to Chinese high-end new energy brands (such as Xpeng and Li Auto). This shift is driven by the decline in market share and thinner profits of traditional luxury brands, while new energy brands offer higher margins and a lower-cost business model that attracts dealers. However, the process of withdrawing from the market comes with significant challenges for dealers, as they face uncompensated sunk costs incurred upfront (such as building stores, holding inventory, and purchasing equipment). The industry calls for adopting practices from mature markets in Europe and the United States to establish a fair system that balances the interests of both manufacturers and dealers.
I. Traditional Luxury Dealers: From Easy Profits to Forced Transformation
In the past, obtaining a franchise for a luxury brand like Audi or Mercedes-Benz was equivalent to securing a steady source of income with stable sales and substantial profits, making it unlikely for dealers to leave the market voluntarily. But things have changed:
- Declining Market Share: The market for traditional luxury fuel vehicles is being squeezed by new energy cars, leading to the closure of approximately 5,000 dealers nationwide by 2025, many of which are luxury brands. For example, the largest Audi 4S store in Beijing, Huayang Aotong, had its premises split between Xpeng and Li Auto, with the new Audi store forced to operate in a smaller space.
- Thinner Profits: Traditional 4S stores used to profit from both car sales and after-sales services. However, the intense price competition in the fuel vehicle market has reduced sales profits to the point where they are sometimes negative (selling cars for less than the purchase cost). Employees at Huayang Aotong mentioned that new energy brands offer higher commissions, providing greater profit margins, which motivated their owner to switch.
- Excess Channels: With declining sales, manufacturers have begun to "optimize" their dealer networks, sometimes forcing dealers to withdraw. For instance, Mercedes-Benz and Porsche have indirectly pressured dealers to leave without offering any compensation.
II. Why Can New Energy Brands Attract Luxury Dealers?
It's not that dealers have changed their preferences; rather, new energy brands offer more attractive incentives:
- Higher Profits: New energy brands offer higher commissions and after-sales profits compared to traditional luxury brands. High-end new energy vehicles like Xpeng and Li Auto generate higher per-unit profits for dealers.
- Lower-Cost Business Model: Traditional 4S stores need to maintain large inventories (worth millions or even billions), whereas new energy brands typically operate on a "order-based" model, collecting deposits from customers before placing orders with manufacturers. This reduces the financial burden on dealers and lowers investment risks. Additionally, experience centers for new energy cars are less expensive to establish than traditional 4S stores.
- Technological Advantages and Market Potential: Consumers increasingly value the intelligence of new energy vehicles (such as autonomous driving and in-car systems), and domestic high-end brands have clear technological advantages, offering significant growth potential.
III. The Pitfalls of Withdrawing from the Market: Who Bears the Sunk Costs?
The biggest challenge for dealers when withdrawing from the market is dealing with the loss of their initial investments:
- Lack of Compensation: Almost no brand has established transparent rules for compensating dealers for their losses. Dealers are left to dispose of inventory at reduced prices and miss out on promised rebates, which violates the "Automobile Sales Management Measures" that require manufacturers to purchase back equipment and inventory if they terminate the franchise without justifiable reasons.
- Catastrophic Losses: Building a luxury 4S store can cost tens of millions, and combined with inventory and equipment investments, the total sunk costs can amount to hundreds of millions. For example, a dealer who withdraws from the market may find their inventory unsalable and their investment lost.
- Emerging Conflicts: In better times, dealers could absorb minor losses; however, with many dealers withdrawing due to poor market conditions, conflicts are arising as they seek compensation from industry associations, but manufacturers often remain unresponsive.
IV. The Future of the Channel Shift
This reshuffle is far from over, and the future trend is clear:
- Continuing Rise in New Energy Adoption: By 2028, new energy vehicles could account for 70% of the market, leading to further contraction of traditional fuel vehicle channels. If luxury brands fail to launch appealing new energy products, more dealers will withdraw.
- Urgent Need for Regulatory Change: The industry calls for adopting practices from Europe and the United States, such as requiring manufacturers to purchase back inventory and equipment when franchises are terminated, or compensating dealers for unamortized investments. However, this requires national legislation to ensure effective implementation.
- Balancing New and Old Forces: It is likely that a coexistence of "traditional luxury brands (with new energy offerings)" and domestic high-end new energy brands will emerge, but only if manufacturers and dealers establish fair cooperation mechanisms—such as clear compensation policies and reduced inventory pressures. Otherwise, dealers will be hesitant to invest.
This major shift in dealer channels reflects the automotive industry's transition from fuel vehicles to electric ones. For dealers, it means either transitioning to new energy or struggling to survive within traditional brands. For manufacturers, failing to address compensation issues will result in a loss of dealer trust. For consumers, this transformation will mean accessing more intelligent vehicles but possibly with fewer traditional 4S stores. Ultimately, the winner will be the brand that balances short-term profits with long-term market sustainability.