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3 reasons why China closed 7,600 car dealerships in two years

The rapid rise of the automotive industry generated a big market for 4S dealerships in China, which shorts for Sales, Service, Spare parts and Surveys, or customer feedback.

4S dealers gained traction in China over twenty years ago for offering world-class service, well-trained employees, and quality customer support. These stores were a solution to the previous car dealing system in the country, whereby the vehicle may exhibit faulty issues after buyers brought it home, but sellers had disappeared.

Car demands in China have also risen. According to Global China Daily, as of December 2021, the number of motor vehicles in China reached 393 million.

It stands to reason that the higher the car ownership, the more popular the business for 4S stores. But this is not the case. The number of 4S stores in China has dropped significantly over the past years.

According to data by Aboluowang, in the first half of 2019, a total of more than 3,600 domestic auto 4S stores closed their doors. The decline in 4S stores has not changed since then, and by 2020, China lost nearly 4,000 more 4S stores.

The paper offered three reasons for the decline. 

First, the market is increasingly competitive; the hotter the industry, the more fierce the competition. Market share has been dwindling for 4S stores when automobile manufacturers began to use a direct sales strategy online. Clients can purchase vehicles through the internet, further dividing the auto market.

Second, as the internet opens a new era of information sharing and public transparency, consumers are continually and promptly informed about car buying and selling prices. However, the 4S store’s earnings did not increase. The cost of doing business in this field is quite expensive. It does require a certain amount of profit to function.

Third, the negative feedback from customers. Despite the early days of quality customer services, complaints of dishonest conduct around 4S stores have increased in China. 

For instance, buyers were concerned about unclear contract terms or the unsatisfactory rise in price. It also lowered everyone’s opinion of 4S.

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