Refusing to pick up a car may be a high probability event. Can SAIC Audi learn from Tesla in its channel competition?

"Dealers are now more united than ever before. Almost all FAW Audi dealers have joined the Audi Dealer Association of the Circulation Association. Now it seems highly likely that cars will not be delivered on December 1." On November 27, an Audi dealer who participated in the Foshan meeting said in an interview with a reporter from 21st Century Business Herald.

On November 21, at the Audi and Chinese Audi dealer representative meeting held in Foshan, Guangdong, representatives of 15 dealer groups unanimously expressed their demand that German Audi terminate its cooperation framework agreement with SAIC, and that a formal reply must be given within ten working days (that is, before December 1), otherwise the import and sales of all Audi models will be stopped from December.

December 1 is getting closer. The head of an Audi dealer said that Audi will have contact with dealers this week. The dealers' attitude this time is very firm, that is, they are against the joint venture between Audi and SAIC without any conditions.

Representatives of Audi dealer investors put forward three demands, which included: if no clear and satisfactory response was received before December 1, Audi dealers would organize a press conference for Chinese and foreign journalists, make the conflict between Audi and dealers public, and reserve the right to sue; FAW-Volkswagen Audi Sales Division misled dealer investors to build a large number of sales outlets based on unrealistic sales targets, resulting in large-scale losses for dealers, and FAW-Volkswagen Audi Sales Division should compensate dealers for their losses.

Dealers demand huge subsidies

"Everyone's demands are the same. We have established an investor strategic negotiation team and six regional contact persons. In order to keep information flowing smoothly, we have also established six committees for sales, marketing, service, products, network, and finance through self-recommendation and recommendation by others. The purpose is to establish an effective communication and dialogue mechanism with manufacturers to ensure the long-term interests of dealers." said the above-mentioned dealer representative.

According to a survey conducted by the Audi Dealer Association (Preparatory Group) of the China Automobile Dealers Association, Audi's dealer confidence index is currently significantly lower than that of other competing brands, especially in terms of product strength, profit potential and business policy, where confidence is the lowest. The news of Audi's cooperation with SAIC has further hit the confidence of dealer investors.

At the Foshan meeting, Audi AG's Marketing and Sales Director von der Leyen said that SAIC had extended an olive branch to Audi for five consecutive years and this time it finally got what it wanted.

On November 18, Volkswagen China President and CEO Heizmann said in an interview with a reporter from 21st Century Business Herald at the Guangzhou Auto Show, "In my opinion, the cooperation between Audi and SAIC Group brings opportunities to Volkswagen Group without any risks. What is certain is that the upcoming cooperation between Audi and SAIC will not affect FAW-Volkswagen. FAW and Audi have a consensus on the plan for the next ten years."

Germany's Audi's choice to cooperate with China's SAIC does not violate business rules, but it has been opposed by FAW Audi dealers. This has a lot to do with the operating status of Audi dealers in recent years.

Since October, FAW-Volkswagen Audi's sales have been declining sharply. And this October is almost the worst month for Audi's sales in China in recent years.

It is reported that Audi's sales in October showed almost zero growth, with the wholesale volume of Audi A6L being 12,300 units, down 11.4% year-on-year; the wholesale volume of Audi A4L was 6,229 units in October, down 41.4% year-on-year; and the wholesale volume of Audi was 47,236 units in October, down 8.6% year-on-year.

In terms of dealer network layout, according to Audi's 2020 strategy, in order to achieve sales of 1 million vehicles in China, it is necessary to match 580 networks. However, Audi's current sales volume is less than 600,000, but it has already laid out 460 dealer networks, which is actually one-third in excess.

"It costs 70 million yuan for an Audi dealer to build a store. One-third of the dealer network has surpluses. Assuming 200 surpluses, the store construction costs will require compensating dealers 14 billion yuan." The above-mentioned dealer told the 21st Century Business Herald reporter that this figure had already been raised at the Foshan meeting.

In addition to the compensation for store construction losses, the second compensation proposed by the dealers is the operating losses in 2016. Whether in the United States or Europe, according to international practice, new car sales will give dealers 3% of the bare car profit.

"Contrary to international practice, Audi dealers are basically selling cars at a loss. This year, Audi dealers' new car sales showed an average loss of 4%-5%, and the loss in western regions even reached 8%. Based on Audi's sales target of 595,000 vehicles this year and an average price of 350,000 yuan per car, the losses of dealers' new car sales this year will be at least more than 10 billion yuan."

The above dealer said that this figure was not raised at the Foshan meeting because dealers were still calculating their own losses. The two losses are cumulative, and the compensation that FAW Audi dealers are asking for from Audi may exceed 20 billion yuan.

Speculations on building a network after the joint venture

"Communicating with foreign parties can only have a deterrent effect." An industry insider said in an interview with a reporter from 21st Century Business Herald on the 27th that in the construction of the FAW-Volkswagen Audi network, it is often the Chinese side that plays a leading role, and the current situation of Audi dealers has also caused FAW to suffer accusations of "inaction" and "arbitrary action."

However, on November 15, Zhang Pijie, Managing Director of FAW-Volkswagen, appeased the dealers at the Audi Dealer Strategic Investment Conference, which made Audi dealers feel uncomfortable. "I am the Managing Director of FAW-Volkswagen. I guarantee with my professional ethics of more than 30 years of work that I will instruct the relevant departments to write down the opinions of all dealers in their original form in two days, so that the Chinese and German shareholders can listen to everyone's voices."

Since SAIC and Audi are "still studying" the specific cooperation, and FAW has no intention of quelling the protest, the outside world is eager to "offer advice" on how to resolve the conflict.

The first option is to connect to the grid, where SAIC Audi uses Audi's existing network for sales without diverting FAW Audi's customer resources; the second option is to adopt the imported Volkswagen dealer network; and the third is to build a new network.

"Grid connection will result in two heads determining one body. If we use the channels fostered by FAW instead of creating another network, the solution to this contradiction is for FAW, SAIC and Audi to jointly establish a sales joint venture. Otherwise, dealers will have to be subsidized," a FAW Audi dealer told the 21st Century Business Herald reporter.

Industry insiders believe that FAW and SAIC have different demands, and "it is not feasible to sell them on the same network." FAW seeks sales volume, while SAIC seeks brand premium capabilities. Although there are differences between the two products, there is a lot of uncertainty when selling them in the same store.

For example, when both A4 and A5 are domestically produced, if FAW Audi has the domestically produced Audi A4 and SAIC Audi has the domestically produced A5, and these two cars are placed in the same dealership store, the price difference between the two is only between 10,000 and 20,000 yuan, so a price war between them is inevitable.

"In addition to price, the manufacturer's business policy will also have a great impact. If there is a phenomenon of product inventory pressure, the manufacturer will need to subsidize the dealer's losses, but the subsidy amount is difficult to calculate, and dealers also need to figure out whether it is SAIC Audi or FAW Audi that is losing money. Moreover, it will become complicated for dealers to determine the terminal retail price, and it will be impossible to coordinate concessions and service behaviors." said an industry insider.

Similarly, adopting the sales network of imported Volkswagens is not a wise move now. Su Weiming, executive vice president of corporate strategy, sales and marketing of Volkswagen Group (China), said in an interview with a reporter from 21st Century Business Herald on November 17, "At present, the overall sales of imported Volkswagens are relatively healthy, with an absolute increase in the first three quarters compared with last year."

"SAIC Audi cannot use the dealer network of imported Volkswagens because the prices of imported Volkswagens are very unstable. Imported cars may be produced domestically in the future, but now it depends on the performance of FAW-Volkswagen. If there is a loss, the German side will most likely choose SAIC Volkswagen for domestic production." said the above-mentioned industry insider.

The last option seems to be more innovative and feasible, that is, SAIC Audi can learn from Tesla's sales model, adopt e-commerce online sales, and establish a small number of offline experience stores. After-sales service will be provided entirely by FAW Audi. However, this will also test whether the needs of both parties can be integrated together.

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.