Who Are the "Haulers" in the Auto Industry?

Gasgoo Munich-In the renowned Russian painting Barge Haulers on the Volga, a dozen men bend forward, veins bulging as they struggle to haul a massive vessel. The ship symbolizes glory and achievement, yet the haulers are mired in the sand, their steps growing heavier and slower by the minute.

A similar scene is playing out across China’s auto industry today. Automakers are the vessel; dealers and suppliers are the haulers on the bank. The ship grows larger and faster, while the haulers grow more exhausted, their pace slowing.

"Losses at dealerships are essentially losses borne on behalf of the manufacturers." Xu Changming, former deputy director of the State Information Center and a senior economist, laid bare the hidden dilemma plaguing China’s auto sector at the 6th International Forum on Automotive Power Systems.

Citing results from listed dealer groups, he noted net profit margins of -1.2% at Zhongsheng Holding Group, -9.8% at Yongda Automobile, -3.8% at Meidong Auto, and -3.6% at Hexie Auto. His point was blunt: "If you ran these as direct-sale stores, wouldn't these losses be the automakers' own?"

Widespread losses at the retail level are just the tip of the iceberg. Xu also produced a comparison of payment cycles between Chinese and foreign automakers: 52 days for Toyota, 40 for Volkswagen, 36 for Mercedes-Benz, and 60 for Tesla. Most international players settle within two months. Leading Chinese automakers, however, often exceed 125 days, with some stretching to 200. "Domestic companies are, to a large extent, running their operations on their suppliers' money."

There is no denying that Chinese automakers have scaled up sales and market share. Over the past five years, domestic brands surged from a 33% share to 64%, while exports jumped from 1 million to 7.1 million vehicles. But behind this leap in scale lies a lopsided supply chain: OEMs stretch payment terms, suppliers front the production costs, and dealers bleed under bloated inventory.

The Payment Gap Remains

Backed by a comprehensive industrial ecosystem, China’s automotive supply chain boasts response speeds, production scale, and iteration efficiency that rank among the world's best—capable of supporting high-frequency model launches, rapid mass production, and large-scale deliveries. Yet when it comes to the core rules of financial settlement, the domestic industry still lags behind global leaders.

After decades, sometimes centuries, of development, international automakers have established mature, stable settlement systems, keeping supplier payment cycles between 36 and 60 days. This transparent, predictable cash flow allows overseas suppliers to schedule production, sustain R&D, and strictly control quality, building a virtuous ecosystem of mutual benefit. Toyota, for instance, will raise parts procurement prices by 10-15% in 2025, benefiting over 60,000 suppliers.

Image Source: 6th International Forum on Automotive Power Systems

Leading Chinese automakers, by contrast, typically stretch payment cycles to 125 to 150 days, with some exceeding six months for a single period. Even though the government mandated last year that large enterprises pay small and medium-sized firms within two months, some automakers use various workarounds to delay actual payments. Given the stark power imbalance, parts suppliers have little bargaining power and are forced to accept these unreasonable industry norms.

The difference between 125 days and 52 days is not a gap in management capability—it is a fundamental difference in how value is distributed along the chain.

The most direct impact of excessive payment terms is the long-term occupation of suppliers' working capital. For a parts supplier with billions in annual volume, extending the payment cycle by just one month freezes tens of millions in operational funds, placing immense strain on cash flow and day-to-day production.

This financial pressure trickles down the chain. To relieve their own cash crunch, Tier 1 suppliers further delay payments to Tier 2 and Tier 3 small and medium-sized enterprises. At the very end of the chain, these smallest firms—weak in risk resistance, narrow in financing channels, and near-zero in bargaining power—face the most acute funding struggles, leaving their operational stability in constant jeopardy.

Today, excessive payment terms combined with routine price cuts from OEMs have become a fixed burden for the domestic parts industry. An industry practitioner told Gasgoo Auto that annual rigid price cuts in the sector average around 10%. That is the reality for the vast majority of parts suppliers, and he expects the overall operational pressure to intensify further in 2026.

Who Underwrites Automakers' Profits?

Pressure cascades down; profit shifts up. As suppliers grit their teeth and cut prices, how do the automakers' own financials look? The truth is, they aren't pretty either.

Data from the National Bureau of Statistics shows the industry's net profit margin has slid from 7.8% in 2017 to just 3.2% in the first quarter of this year. Among leading automakers, Chery’s 6.6% stands as the high-water mark, followed by Geely at 5%, BYD and SAIC at 3%, Great Wall Motor at 2%, and Changan at roughly 1%.

Yet Xu points out that even these modest margins are built on policy subsidies and the squeezing of upstream and downstream partners—not solely on the strength of products or efficiency in the open market.

Long-standing exemptions on the purchase tax for new-energy vehicles have provided a crucial tailwind. This policy not only lowered the barrier for consumers but also helped domestic brands rapidly capture market share and accumulate scale, padding automakers' profits. BYD is a prime example: buoyed by the NEV boom, its annual net profit swelled from just over 3 billion yuan in 2021 to nearly 40 billion yuan last year.

But as the industry matures, those policy dividends are fading. The purchase tax for NEVs was adjusted to 5% in 2026, putting immediate pressure on profitability. If the statutory rate of 10% is restored in the future, the sector's earnings will face an even sterner test.

Less visible than policy perks is the profit derived from interest-free borrowing along the supply chain. Take a leading automaker with 200 billion yuan in annual procurement: stretching the standard 60-day payment cycle to 180 days means effectively holding onto tens of billions in supply-chain working capital year-round. This zero-cost float saves on finance costs, flowing directly to the bottom line.

At the end of this pressure chain, terminal dealers are the final shock absorbers. The loss data Xu released for listed dealership groups offers stark evidence of the struggle for survival at the retail level.

Huayu (a pseudonym), a dealer principal managing brands like Lynk & Co and Exeed, told Gasgoo Auto that with the macroeconomy in an adjustment cycle and internal competition intensifying, OEM inventory stuffing and terminal price inversions have become the norm. The channel's already razor-thin margins are being compressed to the breaking point.

Reports suggest some automakers rigidly require dealers to maintain an inventory-to-sales ratio above 2.0, backed by strict penalty systems. Once a dealer's cash chain comes under stress, the partnership suffers immediately. As automakers raise sales targets year after year while terminal market capacity stabilizes, the era of incremental growth bonuses is over—and the operational pressure lands squarely on the channel.

At the same time, some automakers are aggressively pushing dealers into new media marketing, yet dealers must bear all the labor, costs, and risks themselves, further squeezing channel profitability.

The imbalance in profit distribution has also triggered a structural split within the parts industry. Xu notes that power batteries are one of the few profitable segments domestically, but the gains are highly concentrated. CATL, commanding a 40% market share, holds the sway and single-handedly lifts the sector's average profitability.

Strip away the top battery makers, and the vast majority of domestic parts suppliers operate with thin margins and sluggish growth. An employee at a leading auto materials company admitted that while the firm generates "tens of billions in revenue, net profit is only a few hundred million."

Once you strip away the hidden gains from policy perks and capital occupation, the real profitability logic of the vehicle industry becomes clear: some companies' paper profits are essentially built on suppliers fronting the costs, dealers absorbing losses, and state policy providing a safety net—not on genuine high-quality development.

The Cost of Hidden Expenses

Excessive payment terms, routine price crushing, and unbridled cost shifting are steadily draining the health of the entire automotive supply chain, constraining the industry's transition to high-quality growth.

The first risk is a survival crisis for the supply chain. The normalized pressures of rigid price cuts, stretched payment cycles, and high financing costs have trapped most parts suppliers in a dilemma: take orders and lose money, or refuse orders and shut down production.

Industry insiders report that some automakers fully pass on upfront costs for molds and R&D. If a project's volume falls short, the supplier eats the loss alone. In one case, a premium brand even required suppliers to purchase demo vehicles and generate orders as a hard condition for remaining a designated supplier.

The second risk is the erosion of innovation capacity. Most technological innovation and process upgrades in the auto industry originate at the parts level; the supply chain's R&D prowess sets the ceiling for the industry's technology. Yet long-term capital fronting and tight cash flows leave suppliers unable to invest in frontier R&D—projects with long cycles and slow returns. They are forced to focus on basic delivery, continuously slashing R&D budgets.

The third risk is a race to the bottom through low-end price wars. As margins contract, parts suppliers can only compete on price, fueling homogenous competition. With no resources for quality upgrades or technological innovation, the entire supply chain risks stagnating in the mid-to-low end, unable to break through to higher value.

The fourth risk is the accumulation of hidden quality defects. To offset capital costs and meet automakers' price demands, some suppliers are forced to lower material standards, simplify testing procedures, and slash manufacturing costs—ultimately compromising product consistency and reliability.

The fifth risk is the increasing fragility of the retail ecosystem. The chronic plight of high inventory, tight cash, and low profits continues to erode dealer confidence and willingness to invest. The risk of dealers quitting networks or closing shops climbs steadily. Data from the China Automobile Dealers Association shows nearly 5,000 dealers exited the market in 2025.

Xu emphasizes that automakers cannot be trapped in endless price wars; core technology is the foundation. Only through continuous tech iteration can they increase product value and genuine profitability. Yet in the current imbalanced ecosystem, suppliers are forced to focus on chasing payments, fending off price cuts, and simply surviving—leaving little bandwidth for technical innovation and slowing the entire industry's pace.

Of course, not all leading companies operate this way. Xu noted that Huawei maintains a supplier payment cycle of around 80 days. While longer than international peers, the rules are transparent and payments stable—enough to support collaborative innovation and mutual benefit for both parties.

The 15th Five-Year Plan Demands a New Competitive Model

In Xu's view, as the industry enters the 15th Five-Year Plan period, the old model of squeezing upstream and downstream partners to pump up scale and beautify financial reports will run out of road. The unsustainability of this imbalanced approach stems from three profound shifts in core industry variables.

First, the room for growth in the domestic market is shrinking. During the 14th Five-Year Plan, dual growth in domestic and overseas markets generated nearly 10 million units in incremental volume, leaving ample room for crude expansion. But during the 15th Five-Year Plan, China's auto market will bid farewell to high-speed growth, entering a new phase of stock competition and low volatility. The era of masking structural problems with incremental volume is over.

Second, policy dividends are exiting in an orderly fashion. The NEV purchase tax has shifted from full exemption to a 5% levy, and will likely return to the statutory 10% rate. Preferential policies for consumption taxes and power batteries are also being phased out.

Third, the window for overseas market gains is closing. Xu notes that ASEAN, a core battleground for Chinese automakers, has already entered a phase of internal competition among domestic brands, with rivalry extending from sales to manufacturing, steadily compressing profit margins. Emerging markets in South America and the Middle East will likely replicate this pattern of homogenous competition and thinning profits, rendering the strategy of using overseas growth to cover domestic weaknesses ineffective.

These three shifts point to one clear conclusion: the paper profits derived from excessive payment terms and supply-chain squeezing will be untenable in the 15th Five-Year Plan's new era of stock competition and strength-on-strength rivalry. Genuine product competitiveness and profitability will become the core foundation for automakers to weather industry cycles.

To address the trap of internal competition, Xu offers a prescription for transition: automakers must abandon the crude mindset of blind volume chasing and low-price brawls, ending the bottomless price war. Price wars only drain profits across the chain and erode the industry's foundation. Only by doubling down on R&D, refining product strength, and elevating brand value can the industry unlock genuine, sustainable profitability and achieve a high-quality breakout.

From the perspective of the retail channel, Huayu believes the era of crude expansion is over, and stock competition will inevitably force an upgrade. Practitioners must shed traditional operational mindsets and adapt to the new environment through refined operations, marketing transformation, and management upgrades. "Internal competition will inevitably breed new vitality, but only those who evolve with the times and take initiative will reap the new dividends of this transformation."

For the Chinese automotive industry, the transition from scale leadership to quality leadership—and from an automotive giant to an automotive powerhouse—hinges on repairing the imbalanced supply chain ecosystem. The industry must push payment cycles back to reasonable ranges and give suppliers stable cash flow expectations. It must strip out the profits derived from capital occupation, returning earnings to where they belong: technology, efficiency, and brand value. It must respect supplier R&D investment and intellectual property, avoiding disordered price comparisons and malicious squeezing. And it must stabilize profitability at the retail level to build a healthy, symbiotic industrial landscape.

In five years, China's auto industry achieved a massive leap in scale, taking market share from 33% to 64%. In the coming years, the industry must complete a return to values—shifting from "extractive expansion" to "win-win development."

It is worth remembering that world-class enterprises do not survive by squeezing their partners, but by creating value that enables the entire supply chain to win. That is the critical step China's automotive industry must take to move from big to powerful.