China's progress may foreshadow what's next for U.S. retailers

SHANGHAI — If China was an early warning of what the United States could expect from the outbreak of COVID-19 infection, China at the end of April may offer a glimpse of what U.S. auto retailing might look like in another four to six weeks.

After a coronavirus shutdown that kept tens of millions of Chinese off the street and out of the auto market early this year, nearly all dealerships have reopened across the country.

Chinese shoppers may now enter and move around freely in stores, as long as they wear face masks and get their temperatures taken.

The worst appears to be over.

When the coronavirus spread from the central China city of Wuhan all over the country, Renhedao, a consultancy on auto dealership operations, warned in mid-February that a third of the country's franchised stores would run out of cash in three months.

But concerns about cash-flow disruption have eased as retail businesses are improving, the China Automobile Dealers Association noted in its online blog last week.

As of April 10, 99.7 percent of car dealerships in China had reopened, up from 28.3 percent on Feb. 10, the first working day after the extended Chinese New Year holiday. The survey covers 8,857 franchised dealerships across China.

But the survey reports that actual store operations are far from normal. The average showroom traffic level has recovered to only 70.8 percent of normal. And their daily revenue from new-vehicle sales and parts and service business had climbed back to just 67.9 percent and 72.5 percent of the normal levels on average.

One big reason for the sluggish return to normal, according to a separate survey from the dealers association: Many Chinese consumers have crossed car purchases off their shopping lists due to reduced household budgets.

Consumer finances are a new drag on business as a result of coronavirus-related furloughs. Nearly two-thirds of respondents who had intended to buy new vehicles before the pandemic hit are now postponing those purchases, the survey found. A small percentage — 5 percent — said they have ditched purchase plans altogether.

China's retailers also offer a glimpse of how dealerships are adopting new practices in a post-COVID world.

Even though the pandemic has subsided in China, employers remain vigilant about the risk of new infections from travelers to China and Chinese students returning home from overseas universities. But car dealers are now better prepared from the past two months of experience.

One thing many dealers have concluded is that while consumers hesitate to return to showrooms, it is important that dealerships' sales and marketing employees continue working.

Jimmy Tsung, COO of Lio Ho Vehicle Group China, a Taiwan-based company that runs more than 20 stores in mainland China, most of them Ford franchises, said that while business is down, "salespeople should not stop working."

The Lio Ho stores were shuttered in January and February, but employees made use of online channels to market products, Tsung said.

"The best thing I have learned is that TikTok proved to be 100 percent helpful in generating sales leads," he said about the popular short-video app and livestreaming service.

Wang Zhixiong, owner of a Volkswagen dealership in Danyang, a small city in east China's Jiangsu province, shares the observation. His store didn't resume full operation until March 1. During the shutdown, his employees used TikTok and a cloud-based showroom for marketing.

"The results were beyond my expectation," Wang said. "The young generation are the mainstream of our customers, and they really like interacting with us through online platforms."

Another good use of dealership downtime, Tsung said, is asking manufacturers to provide product training for their employees.

"With no customers to serve, the employees can use the opportunity to improve themselves," he said.

Dealerships should also keep a closer eye on their inventory levels and the product mix in inventories, as well as adjust incentive programs for car shoppers in response to changes in consumer demand, Tsung said.

"The best way to retain a customer or to make a deal right away is not to offer a steep discount, but to provide the right incentive program," he said.

When a dealership is ready to reopen, it must create a safe environment for customers and employees.

"We require all our employees to wear face masks, which will make both our employees and customers safe these days," he added.

The comeback might take a while. March sales of new cars and light trucks dropped 48 percent to 1.04 million, compared with a year ago, after plunging 82 percent in February, according to the China Association of Automobile Manufacturers.

At Lio Ho's mainland China-based stores, sales have clawed back to 70 percent of normal levels. Wang's VW dealership also saw its sales return to nearly the same level, while its parts and services have fully recovered.

Neither can afford to be optimistic about the market, they say.

"We saw a clear comeback in March, but a slowdown appeared in sales in the second week of April as consumers are delaying purchases," Tsung said.

Hit hard by the pandemic, the Chinese economy shrank 6.8 percent from a year earlier in the first quarter of this year after maintaining growth for decades. Per capita disposable income in China dipped 3.9 percent in the period.

"With lower incomes," Wang said, "consumers will have to cut discretionary spending on items — like cars."