BYD has given money to dealers

Author | Zhou Zhiyu

Editor | Zhang Xiaoling

The smoke of the price war has permeated the market, and after a busy half-year, BYD's dealers have received "red envelopes."

According to multiple dealers, BYD has recently provided rebates to dealers, with a rebate of 666 yuan per vehicle. Based on the data of over 1.6 million vehicles sold in the past five months, the total rebate scale exceeds 1 billion yuan.

BYD confirmed to Wall Street Insight on June 23 that the rebate red envelope is indeed true.

A BYD dealer from East China stated that one of their 4S stores sold 615 vehicles in the first five months and received a rebate of 410,000 yuan. The dealer mentioned that BYD has had policies to reward dealers in previous years, which not only maintains the marketing channels but also incentivizes the dealers.

At the beginning of last year, BYD issued a document stating that dealers who meet the sales targets for 2023 would receive a reward of up to 666 yuan per vehicle. This reward is an additional incentive beyond the normal commission.

"This amount of money, although not much, is very timely, like a timely rain, allowing us to relax our tense nerves a little," said a BYD dealer from South China, Li Ming (pseudonym).

This red envelope is also BYD's way of using real money to tell its allies: in this tough battle, we must stand together.

Historically, the relationship between automobile manufacturers and dealers has primarily been one of "pressure transmission." Manufacturers set sales targets and assess them through business policies, while dealers are responsible for undertaking tasks and expanding the market. However, in the current market environment, this one-way pressure transmission mechanism is facing severe challenges.

BYD has maximized this approach with its strong product power and brand momentum. During the period of rapid market expansion, this model was incredibly efficient, sharing in the dividends of the era.

However, as market competition shifts to "survival of the fittest," the massive waves created by "Champion Edition" and "Honor Edition" have swept across the entire market with unprecedented force, causing the old balance of relationships to shake violently. The price war has always been a double-edged sword. While it has won BYD a tsunami of orders on the consumer side, it also means that profit margins are being squeezed to the limit on the dealer side.

If first-line channels are generally squeezed in the price war, then no matter how grand the strategic goals are, they will face the risk of undermining their foundation.

BYD has clearly captured this dangerous signal.

Wall Street Insight learned that at a recent core dealer conference, BYD stated that once dealer inventory exceeds the warning line, the manufacturer will stop shipments. This can help keep the inventory pressure on dealers at a certain level and can alleviate the "risk exposure" issues faced by dealers caught in the price war to some extent.

This is also a common problem faced by dealers amid fierce price wars. Looking around, almost no car company’s dealers are not complaining about "difficult business."

On one hand, there is the "sales anxiety" from manufacturers. Under the iron rule of "no growth means death," the KPIs set by car companies are increasingly stringent, with inventory pressure and bundled sales becoming routine operations. Dealers' funds are heavily tied up in inventory, bearing enormous depreciation risks and financial costs On the other hand, there is the "price anxiety" from the market. The rapid technological iterations and endless price wars have made the commodity attributes of cars increasingly consumable. Consumers are holding back their purchases and comparing prices to the extreme, while dealers often have to sacrifice their final profit margins to secure an order.

In this storm, car manufacturers and dealers, who should be allies fighting "back-to-back," are often forced to engage in a face-to-face game of interests. Manufacturers blame dealers for weak execution and incomplete price reductions; dealers complain about the manufacturers' ever-changing policies that disregard their survival. This internal friction is becoming a catalyst for many brands to lose momentum or even collapse.

An executive from a foreign car company told Wall Street News that their strategy in China this year is to sacrifice a certain share of sales volume to ensure that dealers maintain a certain profit margin. For car manufacturers, it is also essential to find a balance between store setup, dealer network optimization, and incentive policies.

In addition to direct subsidies like rebates, it is more important to establish a scientific sales forecasting and inventory management mechanism to reduce dealers' financial and inventory risks from the source.

In the era of new energy, the functions of dealers go far beyond sales; they also undertake diversified roles such as brand display, user experience, after-sales service, and information feedback. A healthy, stable, and loyal dealer network is one of the core moats for car manufacturers.

The traditional relationship of "controller" and "controlled" is clearly outdated. In today's transparent market with intense competition, both parties need to form a mutually beneficial "interest alliance."

For car manufacturers aiming to survive the industry's reshuffling period and achieve sustainable development, managing the relationship with dealers is no longer a multiple-choice question but a mandatory question.

BYD's "red envelope" may just be the beginning, signaling that those brands that can first form a true "community of interests" with channel partners are more likely to emerge victorious in this difficult "elimination match."