Suning ushers in new era for cars sales in China

BEIJING - A market that buys more than 20 million cars a year is mouth-watering for not just automakers and dealers, but even for home appliance retailers, especially after China began reforming its 4S-store domination this month.

In the past two weeks, the first brick-and-mortar car market for Suning.com grabbed the spotlight and put the Chinese car sales market on the verge of groundbreaking changes.

Located in a Suning plaza in downtown Nanjing, provincial capital of eastern China's Jiangsu, the market opened for business on July 15. It now offers cars from 12 domestic and foreign brands, including BMW, Audi and Maserati. It also provides accessories, as well as financial and used car services.

Suning plans to build 100 such markets in major Chinese cities.

Break the mold

The breakthrough would not have been possible without a new set of car selling regulations becoming effective on July 1.
For more than a decade, most Chinese car buyers have turned to authorized 4S stores, a full-service approach that brings together sales, services, spare parts and surveys.

The preceding measures first implemented in 2005 required that all car dealers secure authorization from brand owners, and helped maintain the market, contributing to the growth of the Chinese auto market into the world's number one, the Ministry of Commerce (MOC) said.

China had remained the world's largest automobile manufacturer and market for eight consecutive years by 2016, when output and sales of passenger cars both exceeded 24 million units.

However, domination of the 4S-shop model gave rise to monopolistic practices, dragging competition and making automobile parts expensive.

New rules for car sales allow both authorized and unauthorized dealers to sell cars in China, making it possible for different methods of car sales, including markets like Suning's.

The measures will allow car dealers and different auto brands to share sales and after-sales services, an approach that will save resources, improve efficiency and improve services, the ministry said.

Competition is on

"One of the important meanings of the new rules is promoting competition," said MOC official Hu Jianping.

Suning's car market is a good example.

"China's automobile market has begun to change, needing new models to promote the upgrading of both products and services," said Liu Donghao, president of the digital company of Suning Commerce Group.

The supermarket brought the company more than 3 million yuan ($445,000) in car sales revenue and 200,000 yuan in accessories between July 15 and 26.

Suning wanted the supermarket to be an open platform to bring convenience to customers, Liu said.

"Suning's car supermarket has no intention to race for market share with 4S stores, but to help with their business and expose car brands to consumers via a better channel," he said.

Although he played down the coming competition, Suning's planned chain of car markets might be just the beginning of changes motivated by the new regulations.

Gome Electric Appliances, a major rival of Suning in China, also unveiled its ambition for the car sales market earlier this year, planning to add a car division to most of its 1,700 stores across the country.

If their business model proves to be successful, other companies may soon follow suit, challenging the dominance of 4S shops.

Challenges ahead?

However, the prospect is not as good as it looks.

Both companies are facing the same problem of how to make money, as traditional dealerships have increasingly thinner profits from selling cars.

"We want to try the business model first. If the model works, we will eventually make money from automakers," said Chen Ran, general manager of Gome's auto business division.

For a car market to be a success, effective coordination is needed among car makers, 4S stores, insurance companies and accessory producers to realize a one-stop shopping experience like that in traditional supermarkets, said Chen Hao, president of Jiangsu-based dealership company Xiezhong Auto.

"In the future, car sellers should provide a more and more personalized service targeting a small niche market. Thus, car markets face the tough test of adapting to changing demand," he said.

The newcomers will also be confronted with other segments of the car sales market, including e-commerce giants, used car dealers and group buying service providers.

Suning's Liu said price might not be the advantage of car markets, but the company would ensure price transparency, a full range of products and reliable quality.

"Our greatest strength is breaking the single-brand bottleneck of 4S shops and giving customers a new buying experience," Liu said.