Urban Science Report Reveals Significant Growth in Dealer Franchises in China During 2012, Although Pace Slowed Over Previous Year

DETROIT, March 5, 2013 /PRNewswire/ -- The number of automotive dealership franchises in China grew 17 percent in 2012, compared to 28 percent growth the previous year, automotive retail consultancy Urban Science reported today in its Franchise Activity Report for China. The country had 21,139 automotive franchises as of Dec. 31, 2012, representing more than 83 key brands that Urban Science regularly tracks, up from 18,130 franchises as of Dec. 31, 2011.

"While the automotive retail network in China isn't growing as fast as it had been, a 17 percent rise in the number of franchises still is quite significant," said Hamilton Gayden, managing director, China, Urban Science. "The number of franchises will continue to expand in the near future, but we project that within the next 10 years, the count in China will begin to decline, and sky-high throughput levels will fall to a level similar to that of the United States, around 500 to 600."

According to the report, throughput (the average number of vehicles sold per franchise) was 901, based on a wholesale sales volume of 19 million in 2012, down 9 percent from 990 in 2011. Based on LMC Automotive's projected wholesale sales volume of 21 million in 2013, Urban Science projects franchise throughput will fall to approximately 860 vehicles this year.

In 2012, approximately 90 percent of new-vehicle sales occurred in tier 1, 2 and 3 cities, which are concentrated along China's coast, stretching from Dalian in the Liaoning province south to Guangzhou and Hong Kong. Tier 1 markets collectively experienced a single-digit franchise count increase year over year, despite three franchise closures. Franchise counts in tier 2 and 3 markets increased at a staggering rate: 131 percent year over year, due to increasing urbanization and income levels in these markets, and growth constraints in tier 1 markets due to franchise saturation. Despite this considerable growth, Urban Science reports that there is still great opportunity for expansion in tier 2 and 3 markets.

Large dealer groups in China continue to hold a large amount of influence over automotive retail network development. The country's top 25 dealer groups account for as much as 14 percent of new-vehicle sales, compared to the United States, in which the nation's top 25 dealer groups account for approximately 10 percent of sales. As a result of continuing franchise additions in established sales territories, dealers in tier 1 and 2 markets are beginning to consider objectively determined, contractually defined sales territories as opposed to the verbal agreements currently in place.

Additionally, Sino-foreign joint ventures continue to develop brands unique to China, often with dedicated franchises, to compete with domestic Chinese brands in price-sensitive markets. Urban Science projects that this trend will drive much of the nation's franchise growth in the short term and will provide additional opportunity for dealer groups to expand into other markets.  

"To ensure short- and long-term profitability, automotive manufacturers who do business in China should focus on objective performance measurement and data-driven network planning," said Gayden. "By doing so, they will avoid oversaturating the market and, in turn, decreasing throughput and profitability at the franchise level. With fewer, more-influential dealer groups, it is critical that manufacturers partner with dealers to boost and maintain a high level of performance."

About the Automotive Franchise Activity Report

Urban Science maintains a list of current new-vehicle dealership and franchise information for all car and light truck brands in the United States. Compiled on a monthly basis, the census is the most reliable source of dealership statistics. The data comes from a variety of sources, including feeds from automotive manufacturers, as well as phone and field verification. Urban Science has been collecting this information since 1990 and compiles a yearly analysis every February for the previous year in its annual Automotive Franchise Activity Report.

About Urban Science:

Founded in 1977, Urban Science is a global retail consulting firm that takes a scientific approach to help companies identify where they should allocate resources in order to increase their market share and profitability in the most effective and efficient manner. With headquarters in Detroit, Urban Science serves its global clientele from offices in the United States, Spain, the UK, Germany, Italy, France, Australia, China, Mexico, Russia and Japan. For more information on Urban Science, visit www.urbanscience.com.

SOURCE Urban Science