Audi and dealers reportedly broke off talks

As SAIC and Audi are interested in joining hands, the competition between Audi and FAW-Volkswagen Audi dealers (hereinafter referred to as "Audi dealers") is becoming increasingly fierce.

An insider revealed that the boss of an Audi dealer in Shanghai had just returned from Foshan and said, “The talks broke down and everyone is ready. If no response is given by the deadline of December 1, no cars will be delivered.”

On the 11th of this month, SAIC and Volkswagen of Germany signed the "Cooperation Framework Agreement on Manufacturing and Selling Audi Brand Products in China, Selling Audi Brand Imported Cars, and Providing Related Mobile Services" in Wolfsburg, officially disclosing that they will cooperate with Audi in production and sales in China. Surprised and stunned, the original FAW-Volkswagen Audi dealers were extremely dissatisfied with this and quickly formed a group. On November 21, the heads of several dealer groups including Guanghui and Zhongsheng gathered in Foshan to negotiate with Audi.

According to foreign media and dealers' internal sources, FAW-Volkswagen Audi dealers hope Audi will adopt subsidies, and other media reports say that the subsidies claimed by dealers may be as high as more than 20 billion. However, according to what the reporter has learned so far, the two negotiating parties did not reach a consensus in the end, and many dealers involved in the negotiations may stop taking cars from the factory starting next month.

Stopping car pick-up is just scratching the surface

"Stop delivering cars is just scratching the surface." A Shanghai dealer said: "The cooperation between Audi and SAIC is imperative."

He told the First Financial reporter that from what he knows, the inventory cycle of Audi brand dealers is about 2 months. Even if the car pick-up is suspended, dealers still have cars to sell, which will not have much impact on the market. What's more, the car market is now in the peak season at the end of the year. The number of cars picked up and the sales volume in December are related to the dealers' annual rebates. According to the current situation of the car market, dealers' profits come partly from sales and after-sales operations, and more from the annual rebates of manufacturers. For example, for a new car, the manufacturer gives a profit margin of about 15%, but when the dealer picks up the car, it may only give a profit margin of 5-7%, and the rest needs to be returned by the end of the year through various assessments. In the context of the current downturn in the car market, luxury car brand dealers including Audi, BMW, and Mercedes-Benz have made pre-sales concessions of 10% or even higher, and pre-sales losses have become the norm. Manufacturer rebates are crucial to the annual profit, accounting for basically half or more. In this context, it is difficult to say whether the above-mentioned dealers who participated in the palace coup can sacrifice their interests and keep their promises not to pick up or sell cars.

Professor Stadler, Chairman of the Audi Board of Management, and Dr. von der Leyen, Member of the Board of Directors

According to relevant media reports, the large dealer groups participating in the negotiations, such as Guanghui and New Element, have 4S stores accounting for more than half of the dealers nationwide. However, even so, Audi currently has more than 450 dealers in China, and about 270 dealers that have not participated in the group will still operate normally. In his opinion, it is difficult for dealers to change the trend by forcing the palace.

Judging from the current government approval, even if Audi joins hands, it will not violate the government's industrial policy; from the market level, with the step-by-step advancement of BMW and Mercedes-Benz, Audi's dominant position in the market is no longer there, so even if dealers oppose, Audi's original intention of seeking a larger market share will not change.

The relevant person in charge revealed that the dealers were actually aware of the cooperation between Audi and SAIC last year, but they were just in a state of doubt and wait-and-see. At present, the dealers' "forcing the palace" may only achieve real compensation and more flexible business policies.

Products and channels become the focus

It may seem like a flash marriage to the outside world, but in fact, both parties must have been well prepared. It is reported that SAIC Audi's new car will be unveiled at the Shanghai Auto Show next year. However, dealers believe that in the short term, SAIC Audi's domestically produced models will not compete too much with FAW Audi.

He believes that judging from the products that FAW-Volkswagen has already put into production, the models of the two companies may compete with each other in the future. Secondly, even if Audi can produce on the same line with SAIC Volkswagen after the cooperation, it will still take a long time to improve the technical production capacity. In the past, FAW-Volkswagen also tried to produce another car, Caddy, to improve its production capacity before producing Golf. He unilaterally believes that this process will take at least 3-5 years.

From the perspective of the relevant person in charge, he believes that in the short term, dealers should be more concerned about dealer channels and the sales rights of imported cars. According to the reporter, although imported cars currently account for a small proportion of Audi's sales, they are slower than domestic cars. However, due to the manufacturer's wholesale bundling and KPI assessment, dealers have to sell imported cars at a greater profit and higher losses in order to sell more popular domestic cars.

More importantly, Audi's business policies and sales controls on imported cars are also relatively strict. The person in charge gave the reporter an example. For example, for a relatively niche model like the A1, there are only 7 cars left in the store's inventory, but the manufacturer insists that dealers carry out a marketing campaign with a fee of no less than 100,000 yuan. For dealers, not only are there no sales, but they are also very dissatisfied with the increase in costs.

"If SAIC Audi is established, its dealers will likely also sell imported Audi cars at the same time. The market is already not good, and if someone else comes in, it will definitely disrupt the market and increase costs," he believes.

Audi's Determined Win

Although dealers strongly oppose it, and some even believe that the cooperation between Audi and SAIC may harm the Audi brand, for Audi, these may not be worth the better sales and better-looking numbers on the financial statements.

Audi, which has long dominated the luxury car market, has been somewhat sluggish in China in the past two years. Although it still holds the crown of the first place, its value is getting lower and lower. In 2015, its domestic sales volume experienced its first negative growth since entering China, and the sales gap between it and the second-ranked BMW brand narrowed to about 100,000 units. In the first 10 months of this year, Audi's year-on-year sales in China increased by only 5.7%, lower than the 10% and 10.8% of BMW and Mercedes-Benz (excluding smart). More importantly, its total sales volume narrowed to about 64,000 units with the second-ranked BMW.

On the one hand, the advantages are declining, and on the other hand, Audi's reliance on the Chinese market has further increased. Affected by the Volkswagen emissions scandal, Volkswagen faces huge compensation in the United States and also faces the possibility of sales shocks due to damaged reputation worldwide. In order to save costs, it has recently been reported that it has to lay off 30,000 employees worldwide and improve the production efficiency of its German factories. As the largest market and profit source for Audi and Volkswagen in the world, China will obviously be given greater hope to make up for Volkswagen's losses worldwide.

Although this method is considered to be "fishing in a dry pond", the bumper harvest of both Volkswagen and Volkswagen North and South seems to make Volkswagen very confident in its "balancing act". In the words of the above-mentioned insider, this confidence made Volkswagen and Audi ignore a question: who has helped Audi to become the number one luxury car brand for so many years and has been working hard to consolidate it? This neglect eventually led to the dealers "rising in rebellion". However, according to him, the conditions proposed by the dealers were not recognized by Audi, so it remains to be seen what further moves the two sides will make.

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.