Shenzhou-Borgward aspires to reshape China’s auto retail business model

Chinese companies are now clamoring to ride — and, in some cases, define — the rising wave of ‘new retail’ in the country’s automotive industry. Shenzhou Youche Group (Shenzhou), a company focused on car services and the automotive industry chain, connects automobile services with automobile manufacturers. On January 8th, shortly after its subsidiary acquired controlling stakes of Borgward, Shenzhou announced its collaboration with the German automotive manufacturer within the automotive retail industry and the launch of the Shenzhou-Borgward new retail platform.

Last year, Shenzhou’s subsidiary acquired 67% of Beijing Borgward Automobile Co., Ltd. at a purchase price of RMB 3.8686 billion (USD 0.57 billion). The Bremen-based Borgward automotive manufacturer now operates in China, Germany, Russia, India, Brazil, Mexico, among other countries.

At the press conference, Shenzhou CEO Lu Zhengyao revealed his company’s ambitions to reshape the automotive industry chain as well as pioneer new methods of car sales. He said that Shenzhou-Borgward’s new retail platform model will likely redefine relationships among manufacturers, retailers, and consumers, ultimately improving the efficiency of automotive retail and the flexibility of its products.

Here’s how the model of this new retail platform works: First, car manufacturing and car retail are separated, ensuring two distinct sections able to focus on their own tasks. Next, the new model seeks to transform the traditional way that 4S car shops operate, which has traditionally been with high costs and low efficiency. 4S car shops, which operate under what is often called the 4S model, offer a full-service approach that brings together sales, service, spare parts, and surveys. According to Lu, 4S car shops will be transformed into a variety of retail outlets, such as flagship stores, authorized franchised stores, and special outlets, thus enhancing accessibility for consumers. Lastly, based on applications, big data analysis, as well as the company’s national service network, Shenzhou will launch various consumer-friendly services including ‘zero-down payment’, test driving, a 90-day exchange period, and after-sale maintenance.

Lu shared his own experience when his car broke down several years ago. He recounted how the first 4S shop he went to quoted him RMB 40,000 (USD 5,892). Then he tried another 4S shop, which only charged him RMB 400 (USD 59). The vast price gap led him to reflect on the operational problems of the conventional 4S shop model.

Lu said that the traditional automobile production and marketing model is not adaptive to today’s changing technologies and new consumption channels. Neither the retail model solely based on an e-commerce platform nor the direct marketing model represented by automobile manufacturers has effectively addressed the problems of efficiency and shopping experience. He believes that the new retail model for automobiles does not seek to abandon dealers but instead aspires to empower them. It aims to rebuild the structure of the entire industrial chain, and to redefine the relationship between the factories, dealers, and consumers in a way that optimizes the efficiency of automobile consumption.

According to Lang Xuehong, deputy secretary-general of China Automobile Dealers Association, “The new retail model can achieve channel sinking and promote sales growth explosively in a short period of time. However, store management, capital pressure, financial costs, and other aspects are yet to be evaluated in the long run. Therefore, whether it can be sustained or not depends on whether the management ability can be improved.”

Through its three major business sectors of cars, e-commerce, and finance, Shenzhou has built a leading domestic automotive sharing network and a robust automotive sales service platform. Its service network covers more than 300 major cities in China. The company said that it has managed about 400,000 fleets and serves more than 80 million users.

(Photos from Shenzhou)

Lena Zhang

Lena is our columnist. Previously working as a finance reporter, she is passionate about social sciences and curious about how technology impacts our lives. She holds a master's degree in Social Anthropology from London School of Economics and Political Science.

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