China’s passenger car market is in the midst of unprecedented change.

Cold demand, internal squeeze, consumption classification and the replacement effect of second-hand cars have been superimposed on each other since 2018, affecting the future trend of China’s passenger car market. At the same time, digitalization, modernization and changes in consumer demand followed.

What are the growth opportunities hidden behind these trends that are easily overlooked by auto companies?

In order to empower vehicle enterprises against the trend of growth, Shence data united Water Drop automobile, based on the two sides in the passenger car market digital service field of professional ability, launched the automotive industry trend analysis report “facing 2020S: Grasp the Transition of China’s passenger car market”.

First, depressed market situation

1. Under the influence of multiple factors, the sales volume of passenger car market will fall below 19 million units in 2020

China’s overall passenger car market is expected to fall below 19 million units in 2020. In addition to the sudden impact of the novel coronavirus outbreak, the demand overdrawn by the preferential purchase tax policy for small-engine vehicles has not recovered, and the high leverage ratio of the residential sector has also squeezed the willingness of some consumers to buy cars. The expected moderate growth will continue to be delayed.

2. The competition is further intensified, the price war continues, and the market concentration is rising

In the competition pattern, a new round of more intense price war is still staged. Since the fourth quarter of 2018, the producer price index of the automobile manufacturing industry has continued to decline, and the switch of emission standards in 2019 has further lowered market price expectations.

On the other hand, the concentration of passenger car market is rising rapidly. The sales proportion of independent brand CR10 began to approach 91% in 2019, up nearly 6 percentage points compared with 2016. At the same time, however, the market share of its own brands fell to 2015 levels. Auto brands with limited sales volume will face greater competitive pressure, and some of their own brands may face the risk of elimination in the short term.

3. The profit level of automobile enterprises has fallen seriously, and the leading automobile enterprises are also greatly affected

At the operating level, the profit level of the automobile industry continues to decline, and the profit margin dropped from 9% in 2014 to 6.3% in 2019. Some joint ventures deeply bound with international auto giants have also seen a large margin of profit decline.

Second, the coming stock era

“Will not come” is the most appropriate expression of the current passenger car market to the stock era of transition.

1. Main first-time buyers are declining at a compound annual growth rate of -4%, while replacement and additional buyers are growing steadily

Initial demand, which has been the core driver of the passenger car market, is starting to wane. Both first-time buyers — 25-29 year olds — and new drivers are on a downward trajectory, with the former projected to decline at a compound annual growth rate of -4% from 2016 to 2025.

At the same time, replacement and additional purchases of customer group scale steady growth, began to gradually rise as the main market driving force in the future. In 2019, the proportion of replacement and additional purchase customers has surged from 10% in 2017 to 30%.

2. Used car sales will surpass the new car market in 2025, showing the characteristics of stock

With the increase of passenger car ownership, the frequency of favorable policies and the change of consumers’ concept, the second-hand car market will also form a certain substitution effect on the new passenger car market. By 2025, more than 20 million used cars will be in circulation, surpassing the sales volume of the new car market.

3. The new four modernizations bring changes in industry profit structure and competition and cooperation relationship

The promotion of the new four modernizations will bring unprecedented changes in profit structure and competition and cooperation relationship to the automobile industry, but the traditional profit pool will not shrink in the short term. In addition, due to the market compliance access process, the pace of strategic implementation of automobile companies and the uncertainty of the perception of drivers and drivers, the profit pool size of the new Four industrialization is expected to increase at a compound annual growth rate of 35% from 2019 to 2025, rather than a rapid explosion.

What is noteworthy is that the cooperation between auto companies and other background market participants has also begun to rise from the business level to the strategic level, and the profit orientation of such cooperation has become more and more clear.

Third, digital consumers

1. The path of consumers’ car purchase is becoming deeply online

When the passenger car market accelerates into the era of stock, consumers’ car purchasing path begins to develop deeply online. The penetration and influence of online information on consumers’ car-buying decisions are gradually deepening. On the one hand, this is due to the active use of digital channels by auto companies to carry out marketing activities, and on the other hand, consumers are more willing to take the initiative to embrace digital channels.

Shence data on the cluster analysis of the respondent group results show that the depth of online consumers has reached 39%; 90% of consumers will take the initiative to obtain information through online channels before they have a clear car purchase plan. The digital marketing of auto companies still needs to make great efforts in channel selection, content form and demand matching, and infiltrate digital marketing activities into the whole decision-making journey of consumers.

2. Consumer car scenarios are becoming increasingly intelligent

The intelligent car scene will be an important change brought by the new four modernizations for the next decade. In the vehicle models of the Sixth period (after 2019.7), the proportion of front-loading vehicle networking configuration for sedans, SUVs and MPV models has reached 52%, 53% and 42%, and the overall allocation rate is above 50%. This is not only the basis of the intelligent car scene, but also the beginning of the integration of automation and network into the car scene.

Shence believes that passenger cars will also form a service-oriented and profit-oriented modular architecture on the intelligent network, which will greatly enrich consumers’ digital car scene. Diversified digital experiences, advances in automotive software and leaps in computing power will generate a large amount of user behavior data, but automotive companies have little experience in the subsequent analysis and application of user behavior data.

Four, the car enterprise action enlightenment

1. Enhancing the loyalty of car owners is the core idea for car enterprises to achieve countertrend growth

Undeniably, the first purchase demand is still the main source of income contribution for auto companies. But in an era of inventory, growth is unlikely to come from a dwindling base of first-time buyers.

Shence’s point of view is that car companies need to enhance the loyalty of owners as the core idea of countertrend growth. In the hypothetical scenario of the future, the continuous and gentle improvement of loyalty will help auto companies to achieve a huge market increase from negative to positive, which is worthy of attention of all auto companies.

In order to take the lead in the transformation of China’s passenger car market, it is more rational for car companies to attract existing car owners by actively deepening their contact with existing car owners and prompting them to complete the replacement and additional purchase within the brand system.

In fact, service quality is one of the most critical factors affecting the improvement of consumer loyalty. In addition to improving service quality, creating excellent products and continuously building brand power, auto companies also need to find new weapons to enhance the loyalty of owners.

2. Car companies need to re-examine digital channels and maximize the value of car owner apps under the new four modernizations trend

Facing digital consumers, auto companies need to re-examine the value of digital channels and take various mobile apps owned by auto companies as digital Bridges to establish contact with consumers. In 2019, the penetration rate of car owner APP was only 20%, but in 2025, the penetration rate of car owner APP will be three times that of 2019, and the huge demand for additional purchase and replacement of the future users, which is three times that of today, cannot be ignored.

It is worth noting that the low penetration rate at the present stage also exposes the lack of operation level of car companies’ APP products. 11% of car owners clearly stated that they would not take the initiative to install brand-specific APP.

The refined operation of car owner APP is by no means a simple use case to improve the digital experience. Among consumers who have used car owner APP, 70% of car owners say they often use APP to manage and control their cars, and 73% of car owners use car condition query service. At this stage, compared with the intelligent experience scene in the cockpit, the ubiquitous Internet of vehicles interaction scene with mobile devices is the best place to improve the digital experience of car owners.

3. Auto companies should speed up their actions to integrate brands into the automotive life of consumers in all fields and have the right to speak in the future profit pool

It’s important to note that all types of players want to connect with consumers in the future of smart cars. The exploration made by some technology giants and emerging automobile enterprises in automation and Internet connection has attracted more media attention, inadvertently diluting the traditional brand of automobile enterprises in the new four modernization field.

The survey results show that there is a huge deviation between consumers’ perception of various players’ autonomous driving skills and the actual situation, and such deviation is also likely to exist in other fields related to future profit pools.

The dilution of traditional car brands will undoubtedly affect their voice in the future profit pool. Shence suggested that car companies should move ahead and integrate their brands into consumers’ entire automotive life through digital channels.