Throw together the world’s largest auto market and the biggest number of internet shoppers and excitement starts to rev.
That certainly seems to be the case with Autohome, a Chinese automobile information website, which saw its stock price surge 77% on Wednesday on its debut on the New York Stock Exchange. Investor sentiment was probably buoyed by news earlier this week that auto sales in China hit a record high in November.
So have Chinese consumers really gone from being hesitant to buy clothes online just a decade ago to ready to whip out their credit cards and snap up a car? Not quite.
“I know the website [Autohome] as it has been around for such a long time. As a real consumer, looking for info online is OK, but I would never make a deal online unless I know someone [working] on the inside,” Demon Cui, a 32-year-old car enthusiast in Shanghai, told China Economic Review.
Autohome is a vertical website. This means it offers multiple functions such as browsing car details, checking prices and buying a car. The company is not a typical auto dealer and does not have a physical presence.
Prior to its listing, it caught the attention of the local media on Singles Day, the biggest online shopping event in China that takes place every November 11, following surprisingly strong sales by value. The Beijing-based firm sold 17,776 cars valued at US$434 million. Rival BitAuto saw sales top US$1.93 billion.
Such platforms have strong online brand recognition as car sales websites and leverage e-marketing to bring in more users. They hope to use their business model to tap into a willingness by Chinese to embrace online shopping and rising auto demand.
In a survey conducted at the end of 2012 by consultancy Arthur D Little, more than 86% of Chinese consumers said they were “likely or very likely to purchase a new car online.” Only 42% of Americans answered the same. The China Association of Automobile Manufacturers, an official industry body, recently said it expects to see Chinese auto demand rise 10% annually during the next seven years.
But sites like Autohome and BitAuto still have plenty of obstacles to clear if they expect to become leaders in a potentially promising market.
China doesn’t have an “online car dealer in its true sense” at present, said Xue Xu, a marketing professor and auto analyst at Peking University. The likes of Autohome are more marketing platforms rather than online dealerships as they direct buyers to brands instead of selling directly. “Automobiles, unlike clothes or books, are a complicated product [the purchase of] which largely depends on on-site experience.”
There remain other hurdles for such auto marketplaces, both practical and psychological. Some consumers are concerned about safety given the large amount of money needed to pay for a vehicle, noted Cao Lei, director of the China E-business Research Center. There also needs to be physical stores where buyers can get collect their car and get it serviced, and this still needs to be regulated, Cao added.
Demon, the auto enthusiast, agreed, saying both his lack of trust in paying for a car online and questions over who will take care of it should there be any problems would put him off buying from a site like Autohome.
A lack of stores and inventory also creates issues around pricing, which is a sensitive topic for many Chinese shoppers. In the weeks leading up to Singles Day, Autohome unveiled big promotions but on the day itself, many users vented their anger online when the deals promised were not those found when they visited dealerships.
The experience of mature auto markets shows that dealerships that offer a full package of services are an alternative model. These companies provide a wealth of product information online to help customers pick a model right for them, a physical store to collect and repair their car and access to credit.
China’s market is slowly adapting, with the appearance of O2O (online to offline). Such a model can help an existing business win customers online but conduct other parts of the business offline. It’s not a new concept in the world of e-commerce, but in the auto industry is still at the start-up phase.
Chebaihui E-Commerce, a Beijing-based firm that opened its doors in March, boasts an online search and order service, as well as test drives and order collection at more than 100 physical stores around China. Pangda Automobile Trade, which provides consumer finance, launched its own e-commerce website in November to sell autos from around 100 brands across its network of almost 1,000 stores.
At least in the short term, dealers should not expect Chinese to purchase a car online the same way they buy a coat or handbag. Still, attitudes and behaviours are changing. “E-commercialization is a trend for all kinds of industries,” notes Cao.
Firms that offer the opportunity to take a new model for a spin and the assurance that somebody will be on hand to change the oil are better placed to tap this than those only allowing buyers a peak through a virtual shop window.