A consumer selects a new energy vehicle at a store in Chongqing. (Photo by Sun Kaifang/Visual Chongqing)
Chongqing - "This used to be a Buick 4S store, but now it's a Xiaomi 2S store," remarked an auto sales veteran with over 20 years of experience, standing in the newly renovated showroom on Chongqing's Daping Shiyou Road. The dealership’s sleek, minimalist design now showcases Xiaomi’s high-tech aesthetic, with no visible reminder of its previous identity.
This shift reflects a broader trend in the automotive sales industry.
Over the past year, as the market share of new energy vehicles has steadily grown and traditional fuel-powered vehicle sales have waned, more auto dealers in Chongqing have started transitioning to new energy vehicle brands, embracing the future of mobility.
"There were 600 authorized 4S auto dealers in Chongqing in 2023, but by 2024, more than 100 had closed, most of them representing fuel-powered vehicle brands," said Chen Xueqin, Executive Vice President of the Chongqing Automobile Business Association.
According to Chen, this trend is far from coincidental. Over the past decade, the fuel-powered vehicle sector enjoyed its golden era, with joint venture brands in the spotlight. Luxury brands such as Mercedes-Benz, BMW, and Audi were considered "jewels in the crown." Industry insiders noted that large-scale 4S dealerships for Mercedes-Benz and BMW in Chongqing once generated close to 100 million yuan ($13.74 million) in annual profits.
However, since 2022, the fuel-powered vehicle market in China has faced major challenges, including price wars and inventory clearances. The rapid growth of the new energy vehicle sector has further compounded these difficulties.
Data from the China Passenger Car Association (CPCA) shows that domestic fuel-powered vehicle sales in 2023 were 13.95 million, down 6 percent year-on-year. From January to November 2024, the number fell further to 10.26 million, a year-on-year drop of 18.8 percent.
Chongqing mirrors this national decline. Chen outlined three primary reasons behind the trend: reduced lead volume, shrinking sales, and declining profit margins. For example, luxury brands implemented deep discounts in 2024, with BMW’s 5 Series marked down by more than 150,000 yuan, selling for as low as 300,000 yuan. The Audi A6L and Mercedes-Benz C-Class also saw 30–40 percent price cuts.
Despite these aggressive price reductions, consumer demand remained weak. CPCA data revealed that in October 2024, domestic luxury car retail sales were 210,000 units—a 7 percent year-on-year decline and a 15 percent drop from the previous month.
A luxury brand 4S store manager in Chongqing described the grim situation: dealers often receive vehicles from manufacturers at a 10–20 percent discount, but must sell them at prices up to 30 percent lower. "For each car sold, we lose tens of thousands of yuan, and even the year-end commissions from manufacturers can’t offset the losses."
Meanwhile, the new energy vehicle market continues to rise. Between January and October 2024, Chongqing's new energy vehicle sales surged nearly 50 percent year-on-year, achieving a penetration rate of 54 percent.
For fuel-powered vehicle dealers, the golden era is over, and transformation is no longer optional.
Yang Yi, Executive Chairman of Bescar, explained that their company began its transition in 2021. Currently, the ratio of new energy to traditional fuel-powered vehicle stores is approximately 4:6. Their diversified business model includes traditional 4S stores, city showrooms, and shopping mall outlets. "About half of the newly opened stores are conversions from traditional brand dealerships," Yang added.
Since 2022, Chongqing Shangshe Automobile Sales Co. Ltd. has also accelerated its adoption of new energy brands. Wang Lingxiu, a member of the company’s decision-making committee, noted that 50 percent of their sales outlets now focus on new energy brands, with four or five new stores added in the past year alone.
Longhua Group, previously one of Chongqing’s top five auto dealers with annual sales exceeding 30,000 vehicles, has repurposed several of its traditional fuel-powered brand dealerships. These showrooms are now rented out to new energy brands, while the company itself has shifted toward property management.
Nationwide, the transformation trend is clear. According to the China Automobile Dealers Association, more than 8,000 4S auto dealerships closed between 2020 and 2023, while new energy brand outlets proliferated. In 2021 alone, over 6,000 new energy stores were added. Chen remarked that in 2024, Chongqing opened at least 100 new energy vehicle brand stores.
However, transitioning to new energy vehicle brands does not automatically ensure success. Yang pointed out that many early entrants into the new energy vehicle market have already exited, primarily due to insufficient brand strength, making it difficult to sustain operations.
In the first half of 2023 alone, 811 independent new energy vehicle brands exited the market, according to data from the China Automobile Dealers Association.
"In the transformation process, choosing a partnering brand is critical for dealers," Yang said, adding that dealers should opt for brands with strong financial backing, ample cash flow, and technological expertise.
Meanwhile, new energy vehicle brands are equally selective about their dealers. Chen noted that well-known manufacturers often require dealers to be among the top 100 ranked by the China Automobile Dealers Association, have experience with luxury brands, and maintain a strong regional presence.
Recently, a user center of the Harmony Intelligent Mobility Alliance in Bescar, Chongqing, converted from an imported Volkswagen dealership, has experienced a steady flow of customers and booming sales.
"Sales revenue has increased two to three times compared to before," the center manager reported. After switching brands, the store’s overall performance has seen a significant boost.
"Compared to the traditional 4S store model, the biggest advantage of the agency model is that it reduces the dealer’s operational risks," Yang explained. Under the previous dealership model, vehicles might take a year to sell, with average inventory turnover taking at least a month. This is no longer an issue, as inventory is primarily managed by the manufacturer and can be turned over in about 10 days, Yang added.
Wang mentioned that inventory fund pressures are significantly reduced compared to traditional sales models. "The front-end gross profit for the agency model is relatively stable, whereas traditional fuel brands experience large price fluctuations, greatly affecting profitability," Wang noted.
"With the agency model, it’s essentially about helping the manufacturer take orders. Once the manufacturer receives the order, they arrange for production and delivery," Chen explained.
While the agency model offers advantages, it also introduces challenges, the most notable being a shift in profit structure. In the traditional model, dealers generated revenue from various sources, such as vehicle accessories, insurance, financing, and extended warranties. Under the new energy vehicle agency model, these services are largely handled directly by the manufacturer, leaving dealers with only a fixed delivery service fee.
Wang observed that overall profit margins for new energy vehicle stores are similar to those of traditional brands, but the total profits are not as high as during the peak years of traditional fuel-powered vehicles.
"Of course, new energy vehicles are still in the market growth phase, and their market penetration will continue to increase. Dealers are in the process of establishing their position. Once the market matures, total profits are likely to rise significantly," Wang said.
The changes in the sales model have also affected after-sales services. Chen highlighted that new energy vehicles involve maintaining the three-electric systems, which fall under fire safety regulations. This requires repair personnel to undergo strict training and obtain certifications. Moreover, repairs for certain core components must be sent back to the manufacturer’s technical center.
An even more pressing issue is building a comprehensive service system. As the stock of new energy vehicles grows, challenges like second-hand car transactions and battery recycling are becoming increasingly prominent under the current sales model. These areas demand top-level design and regulatory guidance from government authorities, according to Chen.
"For example, with battery recycling, many vehicle manufacturers use third-party batteries. In the current agency sales model, the battery must first be sent to the manufacturer and then transferred to the battery company," Chen said. He noted that the top five battery companies now hold 90 percent of the market share, and if they are solely responsible for recycling, they could face enormous pressure.
Additionally, the high level of digitization in new energy vehicles presents new challenges for the existing sales model. For example, repair rates from insurance companies are calculated based on the number of policies sold, but now the insurance is purchased through the manufacturer while repairs are handled at the dealerships. According to Chen, this disconnect has caused management confusion, negatively impacting consumers.
One perspective on the future of new energy vehicle sales models suggests that the traditional 4S store approach, seen as inefficient, will eventually be replaced by more innovative models.
A senior executive at a Chongqing-based car company explained that during the mass sales era of fuel-powered vehicles, manufacturers rarely focused on understanding customer needs. Instead, they produced cars in bulk and sold them through dealerships. While dealers absorbed some inventory risks, this model also generated high marketing costs.
With the rapid evolution of new energy vehicles—characterized by their strong electronic consumer traits—manufacturers now rely heavily on market feedback to refine product positioning and design. At the same time, advancements in production technology allow for more flexible manufacturing and quicker delivery, reducing the need for dealers to bear significant inventory risks.
Yang predicted that once the market matures, 4S stores and customer centers will continue to dominate, supplemented by shopping mall and city showrooms. “After all, customers spending hundreds of thousands of yuan on a car will trust large stores that provide comprehensive after-sales services,” he noted.
Chen highlighted the vast and varied Chinese market, where domestic brands already hold a significant share. As sales rise, manufacturers’ management costs for direct sales and agency models are likely to increase. In response, some sales permissions could become decentralized, possibly leading to the return of an authorized dealer model.
Wang suggested that direct sales are effective during a market’s initial entry phase. However, once the market stabilizes or competition intensifies, manufacturers may need to adjust their strategy, expanding the dealer network to simplify management, reach deeper markets, and spread out market risks. In the future, the automotive sales industry could see a mix of direct sales, agency, and wholesale models coexisting.
This trend is already taking shape. For instance, Avatr has started moving from a direct sales model to an agency model, while BYD’s Denza and Fang Cheng Bao brands are gradually converting their direct outlets into authorized dealerships.
“The iteration of new energy vehicle products is fast, and customer demands and market changes are rapid as well,” Wang noted. “This means we must speed up the sales cycle and demand more refined team management.”
Yang emphasized that the key isn’t about which sales model is chosen, but rather how effectively consumers’ needs are met—something he sees as the true core of the automotive sales industry.
(Bai Lin, a reporter from Chongqing Daily, contributed the Chinese version of this report.)
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