ZHUHAI, China – When a customer buys a new car at one of Lei Shing Hong Group’s Mercedes-Benz dealerships in China, their WeChat account is added to a special LSH group on the omnipresent Chinese-social media platform.
Through it, the owner receives service reminders, info about potential recall bulletins and general information about what LSH is doing as a group.
“We want to engage them at a very early stage,” Anthony Teo, director-aftersales network for Lei Shing Hong Auto Management, tells WardsAuto. “It lets them feel they are connected to us.”
Profits are low or nonexistent for many dealerships in China. Meanwhile, new-car sales growth is forecasted to slow in the coming year. Fixed operations are becoming more and more important as a source of revenue and profits. Social media is a vital tool to stay in touch with customers and lure them back into the dealership for service and more.
Fixed operations accounts for 10% of LSH Auto’s total revenue, Teo says, noting, “Also, it is very profitable.”
Lei Shing Hong Auto Management is a division of Lei Shing Hong, a business conglomerate based in Hong Kong. LSH, which owns Mercedes dealerships across China, including seven in the Shanghai area, has a number of strategies to tie owners to their dealership.
When someone purchases a new vehicle at an LSH store in mainland China, they have the option of purchasing a welcome package – whose name roughly translates as “gathering the energy together.”
With the package, for the next three months the customer receives engine checks, polishing and other special services in the dealership where the vehicle was purchased.
Extended warranties are another way LSH ties customers to its dealerships. The Mercedes-Benz factory warranty is three years; LSH offers an extended warranty of five years. The take rate is about 50%, says Teo.
“We want the customer to get used to the kind of aftersales service they can experience at the dealership,” he says.
Some three-quarters of China’s dealerships are unprofitable or barely breaking even, according the China Automotive Dealers Assn. While new light-vehicle sales rose nearly 16% in October the rate of growth has been slowing.
Much of the growth was being driven by consumer fears a tax cut on vehicles with small-engine displacements would expire at year’s end. While it won’t be eliminated, China’s government says that the purchase tax on vehicles with 1.6L or smaller engines will rise to 7.5% from the current 5%. That is expected to reduce sales in 2017
Social Media Targets Youth
Areas such as finance and insurance are important sources of income for Chinese dealerships in more mature markets. That has magnified the importance of fixed-operations income.
“The new-car business is getting hammered,” Robin Zhu, a senior analyst in Hong Kong at research and brokerage firm Sanford C. Bernstein, tells WardsAuto. “So, dealers need to rely more on fixed operations.”
At the eight Hong Kong-listed Chinese dealership groups he tracks, fixed operations accounted for 12.4% of revenue and 66% of gross profit in 2015, says Zhu. In 2011, fixed operations accounted for 8% of revenue and 36% of gross profit.
Those dealership groups sell mainly luxury brands. But volume-brand dealerships in China are equally dependent on fixed operations for profits.
Yemao Huang is CEO of Greenway Auto Group China, which owns five Ford dealerships in Shanghai and three in nearby Suzhou. It is owned by the Greenway Automotive Group of Orlando, FL.
“Fixed operations is a big part of business,” he says.
Overall service gross profit is about 50%, Huang says, with body-shop work accounting for more than half of his service revenues. Parts sales aren’t a big profit center.
“Parts can be bought anywhere. They are cheap,” he says. “Body shop is a much more important part of business. In China, every dealer has a body shop.”
Greenway sends texts and emails to keep in touch with customers. But the most important communication channel is WeChat, says Huang. Newspapers generally don’t reach the younger generation of Chinese, but they all seem to use WeChat.
As for TV, it is “way too expensive,” he says. “It is for the OEMs to do brand marketing.”
The listed dealership groups use databases in their customer-relationship-contract systems to keep track of customers and contact them every three months or so, Zhu says.
LSH, which is not listed in Hong Kong, closely tracks owners’ service records, says Teo, who recommends scheduled services and suggests additional services.
It also tracks dealerships’ records of providing these reminders. A monthly report is sent to the dealerships about service opportunities that haven’t been followed up on. The service reminders have a 93% achievement rate, Teo says.
It is an area LSH aims to grow. “We want customers to feel we can take care of all their motoring needs,” he says.
