by Sam Abuelsamid
Over the course of the 20th century, the so-called "developed world" changed faster than at any time in recorded history, but not all parts of the world changed at the same pace. Late in the century some regions attempted to catch up, most notably China and India. In the process of doing so, they didn't follow in the footsteps of their predecessors and cultural differences have meant that some things have been a bit different – including automotive retailing.
During our visit to China for the Beijing Motor Show, Buick offered to take us on a visit to a local dealership to see how things are done a bit differently. At first glance, the Buick dealer we visited on the northwest outer reaches of Beijing didn't appear radically different from what you might encounter in the United States. A somewhat small showroom (at least compared to some of the larger American stores we've seen) contained eight cars, including each of the market's currently available models. Read on to see how things diverged.
Shanghai General Motors started selling cars in China in 1998 and sold fewer than 20,000 cars in 1999. By 2009, sales had grown to over 1.83 million units and are on target to top two million this year. Because private ownership of cars in China is a relatively new concept, an enormous percentage of the customers picking up new rides are doing so for the first time. We met two customers in the showroom during our visit.
One gentleman was a 41-year-old employee of a construction company in Beijing who just got his driver's license a year ago. He bought a new LaCrosse last year based on the recommendation of friends. Because of his inexperience (and the relative inexperience of most Chinese drivers) he wanted what he felt would be a safe car. Word-of-mouth promotion is nothing new, but it's particularly important in China. What's different in China is what happens at time of sale.
In the United States, the vast majority of new car sales are financed. Very few people buy cars for cash. Precisely the opposite is true in China. Over 90 percent of new car sales are conducted for cash. When we say cash, we are not just talking about paying in full at purchase time with a check, but actual stacks of cash. Customers will typically walk in with a large bag or case filled with bundles of Yuan. The largest Chinese note is 100 Yuan, so imagine paying up front for a $40,000 (about 280,000 Yuan) LaCrosse. It's a very peculiar phenomenon.
Another factor that's different in China is the number of sales per dealer. Shanghai GM has 385 dealers around the country including 17 in metropolitan Beijing. The one we visited sold an astonishing 2,513 cars in 2009. Among the other dealers in Beijing, Shanghai and other large cities it's typical to sell over 2,000 cars per year. Those are the kinds of numbers that make even Toyota dealers in the U.S. look like laggards when they sell 1,000 cars a year. In contrast, American Buick dealers typically sell less than 100 cars a year.
Buicks sell so fast in China that on average they spend less than 20 days on the lot. The one exception to that is the Enclave, which became available in China in 2009. Because they're imported from the U.S. the Enclave is quite expensive and only available by special order. It can take from three to six months to get an Enclave, and the customer we met earlier came in and bought his LaCrosse the same day – a standard practice, we're told.
The other thing most customers do is come back to the same dealership for service. This particular dealership has about 80-100 customers per day and the service department includes a full body shop in addition to the usual repair and maintenance facility. In order to help customers dealing with the aftermath of a crash, there are representatives of the two largest insurance companies on site whenever the service department is open. The insurance representatives work with the service department to process claims and get the cars back on the road.
The combination of continued rapid growth in China and a sales collapse in North America and Europe resulted in China surpassing both as world's largest car market in 2009. Nevertheless, there are still only a tiny fraction of Chinese that own cars with only about 50 cars per 1,000 people. Chances are things will change even more in the coming years as the market continues to grow. Exactly how they will change we can only guess...
