Online car sales are picking up steam as the e-commerce race continues in China, the world’s largest car market. Earlier this month, e-tail giant Alibaba agreed to host luxury car retailer China Yongda Automobiles Services Holdings Ltd.’s virtual dealership on its website, while online used car trading site MyCheBao received US$50 million in Series B financing.
Alibaba’s general manager of automobile business Wang Licheng said that the Yongda partnership was a departure from Alibaba’s previous practices, according to a South China Morning Post article.
“Alibaba is often considered [a platform for] ordinary people, while Yongda is known for its luxury, so the cooperation of the two will bring a revolutionary change, which was unimaginable in the past,” he said. Yongda is known for its luxury brand affiliations, including Bentley, Jaguar, and Land Rover, although it does carry non-luxury brands as well.
The deal will first allow consumers to buy Chevrolet Epica vehicles through Tmall for 40 percent off retail prices and then gradually introduce more brands and more expensive models. Buyers can pick up their cars at the 200+ Yongda dealerships in China through the O2O system. They will also gain access to auto financing loans and general auto services as well. The new agreement is a continuation of car companies’ gradual adaptation to China’s surging online shopping activity.
The Chinese e-commerce market has been growing rapidly, with a recent report by CBRE China stating that 45 percent of shoppers buy online at least once a week. The report also detailed that “Generation Z,” or consumers aged 18-24, would be very influential in the market for years to come. That report aligns with a 2014 PwC report which stated that young car buyers are a target market for foreign luxury brands, focusing on their perception that foreign luxury brands are safer, more advanced, and better quality than domestic brands.
The online discounts are part of a larger trend of car companies slashing costs as the market for automobiles slows in China. Due to the recent stock market panic in China, auto sales dropped 7.1 percent this past July as many consumers delayed purchases. Experts believe this is due to the fact that many consumers lost money which could have been used to purchase cars. China’s currency devaluation is expected to result in more declining demand and prices for luxury vehicles.
In fact, a spokeswoman for SAIC Motor Co., parent company of Shanghai Volkswagen, even mentioned that profitability wasn’t nearly as important as before. “It’s not about profitability, it’s about how much market share we want to keep,” she said.
Luxury car sales have been on a slight decline within the past two years due to factors such as China’s anti-corruption campaign and the government removing foreign auto brands from a list of approved vehicles for official purchase in 2012. The Chinese government has also been vocal about high luxury car prices, which can cost double or even triple what they are overseas. Partnering with Alibaba and accessing its middle-class market may help Yongda turn around the luxury decline.
“The major driving force in the future will be individual consumers—the growing middle class,” Wang Zhigao, Yongda deputy board chairman, told South China Morning Post. “Growth [of luxury cars] is slowing down as the Chinese economy transforms, and I don’t think it will recover until at least half a year later.” Wang also mentioned more expensive models would be brought to Tmall later, since he predicts luxury model sales will grow 10 percent annually, with 15 percent of sales online.
The growing Chinese middle class has also begun to look more favorably toward second-hand cars. MyCheBao is a platform for people to sell their used cars mostly to dealerships rather than consumers. The service provides a minute-long online assessment, 15-minute at-home inspection, and five auctions a day of 30-minute bidding sessions with after-sales support. The company website states that it possesses the only international technical standards used car assessment team, which uses a combination of auto standards from China, the United States, and Japan. It currently processes 5,000 transactions every month and founder Huang Le sees it growing even more.
Used car sales are forecast to continue rising and eventually match new car sales around 2020. Seventy percent of new car dealerships also reported being unprofitable last year. In many cities, restrictions on the number of license plates available make it attractive to purchase a used car that already comes with plates. MyCheBao is not without competition, with online used car retailer Uxin raising $170 million in March, and Alibaba’s Taobao partnering with China Grand Auto last August for an online used car auction site.