80% of China's auto dealers make losses in '08

Shanghai, December 23 (Gasgoo.com) The financial crisis and auto market slump have alarmingly increased the number of loss-making auto dealers in China this year. By the end of the year, only 20% of the dealerships have gained profits, while the other majority 80% have become loss-making businesses and even gone bankrupt, said xinhuanet.com today.

In these months, many dealers in China’s auto market have been selling cars at a loss in an attempt to reach the year's sales target and to have more favorable policies from the government. Most dealers of famous brands, including FAW-VW, Shanghai VW, Dongfeng Citroen, GAC Honda (Guangzhou Honda), are gritting their teeth to cut the selling prices of their vehicles.

Auto dealers who made big or small profits in the first half of the year are now joining the ranks of cut-rate and loss-making sales. They see the after-sales service as a light at the end of the tunnel, said an industry expert. Now that 4S stores must strive to achieve the sales target even at a loss, they expect to earn the money back by enhancing the after-sales services in the months or years ahead.

But some other 4S stores cannot get more cars to sell at a loss, because they are short of cash flow and unable to take out loans from banks. These dealers have to close their doors or declare bankrupt after clearing their cut-price vehicle inventories. Profit-making has become a daydream for most auto dealers who are carrying on their operations.

This disturbing trend of cutting auto prices, selling cars at a loss, or closing 4S stores is unlikely to stop until the second half of next year if the market chill persists like this. It's unclear how long China’s auto dealers can go to weather the cold.