The automotive circulation ecosystem is undergoing a profound transformation

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Our reporter 　Liu Zhaо

In 2025, China’s auto market has continued to maintain strong growth momentum and has again turned in an impressive scorecard. Data released by the China Association of Automobile Manufacturers shows that in 2025, China’s total vehicle sales reached 34.40 million units, up 9.4% year over year. Production and sales scale has ranked first globally for many consecutive years; at the policy level, measures such as trade-ins for replacing used cars with new ones continue to be stepped up and have become an important support for driving growth in auto consumption. However, when the total volume of the vehicle market is still rising and consumption-stimulus policies are continuing, why do car dealers at the very front of distribution generally feel that “the more you sell, the less you can make,” and even “the more you sell, the more you lose”?

Recently, the China Automobile Dealers Association released survey data on the survival status of 2025 auto dealers. The data shows that the proportion of profitable dealers narrowed from 39.3% in 2024 to 23.5%, while the loss proportion rose to 55.7%. Problems such as price inversion, high inventory, declining customer traffic, and funding pressure have intertwined, becoming the most prominent operational pain points on the channel side. The current situation is no longer just about whether an individual store makes or loses money; rather, after competitive pressure in the auto market is transmitted from vehicle manufacturers to the channel side, the entire auto distribution ecosystem is being reshaped and transformed.

If the core topics in the auto industry in the past few years were comprehensive competition among automakers around technology, brands, and pricing, then in 2025, more and more of the cost of this competition is being shifted onto dealers. Why has the terminal vehicle pricing system kept losing ground? Why is the traditional 4S store network showing a pattern of contracting while simultaneously being rebuilt? And in 2026, which directions should auto dealers pursue to break through? A series of industry issues urgently need answers.

Price wars flowing through to the distribution side

The more dealers sell, the more they lose

In the retail auto terminal market, the operating pressure brought by price wars has been directly reflected through reporters’ on-the-ground visits. Recently, when reporters from Securities Daily went to investigate multiple car brand 4S stores and department-store showrooms in Beijing, Shandong, and other locations, they found that many outlets had prominent promotional boards in obvious locations, advertising limited-time discounts, trade-in subsidies, and financing interest subsidies, among others; in some models, the “bare car” price had dropped below the MSRP by a noticeable margin.

Multiple salespeople told reporters that since this year, the first thing consumers care about after arriving at the store is no longer configuration and performance, but how much discount is still available at the terminal and whether they can stack manufacturer subsidies and local trade-in-for-replacement policies. A sales consultant at a joint-venture brand 4S store told reporters from Securities Daily that the pace of deal-making discussions at stores has clearly accelerated; customers generally repeatedly compare prices, and for some models, quotes even need to be adjusted immediately based on that day’s market conditions. On the surface, terminal prices are more attractive, but for dealers, the selling price continues to slide downward, further compressing profit on new cars that were already not high, and in some cases leading to situations where dealers lose money in exchange for selling volume.

Data from the China Automobile Dealers Association shows that in 2025, 81.9% of auto dealers had price inversion to varying degrees, and 51.5% of the cases had an inversion margin exceeding 15%. This means that retail prices of new cars are widely below the procurement cost, and the most direct cost triggered by the price war is being borne by the distribution channel side.

The formation of this predicament is closely related to the sharp increase in overall competitive intensity across the auto industry in 2025. In 2025, China’s auto industry sales profit margin fell to 4.1%, below the average level of downstream industrial enterprises, indicating that operating pressure is not confined to the distribution end; instead, the entire chain from vehicle production to terminal sales is under strain. In February 2026, the State Administration for Market Regulation officially released the “Compliance Guide for Pricing Conduct in the Automobile Industry,” which brings authorized dealers, agents, and traders under the scope of standardization, and clearly requires that dealer independent pricing rights be respected and that rebate and promotional conduct be standardized. This indirectly reflects that disorder in pricing has affected the healthy operation of the industry.

Profit warning announcements from leading dealer groups also make this pressure more concrete. In its announcement, Zhongsheng Holding Co., Ltd. (hereinafter “Zhongsheng Holding”) stated that in fiscal year 2025, net profit attributable to shareholders of listed companies recorded a loss of 1.67B yuan, versus a profit of 3.21B yuan in the same period of 2024. One of the main reasons was the expansion of gross loss in the vehicle sales business and the decline in financial commission income. China Yongda Automotive Services Holding Co., Ltd. also announced that affected by the price wars in the auto market and macroeconomic factors in 2025—especially since the second half— the company recorded large impairment provisions for certain long-term assets related to some 4S stores with weaker performance. Even leading groups are like this; the pressure facing smaller and mid-sized dealers can be imagined.

Entering 2026, the tight operating situation of auto dealers has not been fundamentally eased. The China Automobile Dealers Association shows that in January 2026 and February 2026, auto dealers’ inventory warning indexes were 59.4% and 56.2%, respectively—both above the breakeven line. In January, 68.8% of dealers reported a year-on-year decline in customer traffic and order volume; in February, 76.8% of dealers reported that sales did not meet the expected targets. Although the operating conditions of dealers at the beginning of the year have been slightly more relaxed than in the earlier period, the core pressure still concentrates on price inversion of new cars, gross loss at the per-vehicle level, and inventory depth that remains relatively high.

4S store networks contracting while being rebuilt

The channel system is entering a period of deep adjustment

If price inversion is a surface phenomenon, then the contraction and reconstruction of the 4S store network is a deeper change in the auto distribution system. According to the “2025–2026 Development Report on China’s Auto Distribution Industry,” as of the end of 2025, the size of China’s domestic 4S store network stood at 32,432 stores, down 1.4% from 2024. Of these, the total number of 4S stores for independent brands reached 21,371, up 1.1% year over year, accounting for 66%; joint-venture and luxury brand 4S stores fell to 7,304 and 3,757 respectively, decreasing by 5.7% and 5.8% year over year. From the surface data, it looks like “some increases and some decreases,” but in reality, channel resources are being redistributed around efficiency, density, and brand survival capability.

Ji Xuehong, director of the Automotive Industry Innovation Research Center at North China University of Technology, said in an interview with Securities Daily reporters that the current adjustment of China’s auto channel landscape shows a two-way trend. On the one hand, independent brands, especially new energy brands, continue to expand and need a more flexible, more downward-reaching, and more user-close channel network; on the other hand, under terminal pressure, joint-venture and luxury brands have no choice but to adjust the pace of store expansion and the channel layout.

A bigger variable in the industry comes from the rise of independent sales channels for new-energy vehicle enterprises. In 2025, the number of independent sales channel networks for domestic new-energy vehicle companies reached 26,260, up about 21% year over year. Among them, the scale share of direct sales models comprising agency and direct operation has already exceeded half, surpassing traditional authorized dealer models. This means that the traditional 4S store model is no longer the only answer for auto distribution, and the channel role is transforming from simply selling vehicles into multi-functional nodes including vehicle delivery, user experience, after-sales service, and user operations.

Lang Xuehong, deputy secretary-general of the China Automobile Dealers Association, said that in 2025, auto channels are shifting from “scale-based expansion” to “high-efficiency operations.” Manufacturers are no longer only pursuing expansion of the number of stores; instead, they are trying more joint-networking, lightweight store building, and cross-border integration.

For investors with relatively small scale and weaker risk resilience, once a brand switch fails, compensation for withdrawing from the network is insufficient, and inventory and funding pressures grow in tandem, their operating flexibility declines rapidly. Lang Xuehong further said that many investors fall easily into a “sales-only mindset,” ignoring the real profitability situation under high inventory, price inversion, and reliance on rebates.

The subtle changes in manufacturer–dealer relationships also reflect the pain of channel adjustments. During reporters’ visits, many auto dealers told reporters from Securities Daily their grievances: current sales targets are too high, price inversion is severe, inventory is high, spare-part prices are too high, there are forced add-on sales (“bundling”), and there are too many authorized outlets in the same city. Satisfaction with new car and used car businesses is relatively low, while after-sales operations generally face pressures such as a decline in the number of vehicles coming into the shop for service (service visits), and a drop in per-vehicle output value. The stable operating model that relied on annual rebates, regional protection, and a single store’s sales radiation radius is being broken by more intense market-based competition.

The auto distribution ecosystem calls for a reassessment

Shifting from a vehicle-selling channel to service nodes

Although the operating difficulties of auto dealers are still ongoing, 2026 brings a window for industry operational recovery. On the one hand, at the policy level, support for auto consumption continues. At the end of 2025, the General Offices of eight departments including the Ministry of Commerce issued the “Implementation Rules for Auto Trade-in Subsidies in 2026,” which clearly states that in 2026, the policies for scrappage and replacement updates as well as trade-in updates will continue to be implemented. The National Development and Reform Commission also proposed that funding to support trade-ins for replacing used goods with new ones will be released in batches by quarter. This means that there is still a backstop force at the level of total demand. On the other hand, the “Compliance Guide for Pricing Conduct in the Automobile Industry” also provides institutional constraints for repairing terminal pricing systems and reducing malicious low-price competition.

As long as the pricing system is not truly repaired, manufacturers’ sales targets remain higher than the market’s ability to absorb demand, and there is no substantive improvement in rebate fulfillment and inventory management, dealers will find it difficult to escape the cycle of “losing cash first, then waiting for rebates.” Cui Dongshu, secretary-general of the Passenger Vehicle Market Information Joint Committee at the China Automobile Dealers Association, told reporters from Securities Daily that with policy guidance, inventory clearing, and the promotion of new product launches, the 2026 auto market is expected to move from pure price wars to competition based on value. But this transformation cannot happen overnight.

The road is long, and yet if you keep walking, you will arrive. Facing current industry difficulties, leading companies are actively seeking change. A related person in charge of Zhongsheng Holding said that in response to the current industry situation, the company has proactively promoted optimization of its network and business structure, and continuously strengthened its after-sales service and customer operation system. After a series of adjustments, the company’s operating quality has shown positive improvement, and the decline in gross profit on new cars has also shown signs of marginal slowdown and a bottoming-out tendency. A related person in charge of Longjiang Co., Ltd. told reporters from Securities Daily that the company proactively promotes business structure optimization and intelligent upgrades. On the one hand, it makes a major push in building new vehicle distribution services, leveraging the “Jiuche GO” platform to connect upstream automakers with county-level down-tier markets, promoting transaction processes to become online, standardized, and intelligent—improving distribution efficiency and lowering transaction costs. On the other hand, it continues to strengthen the application of technologies such as AI, big data, and the Internet of Things, and improves a risk-control, warehousing and logistics, and localized operation system. These measures have achieved preliminary results.

Lin Shi, secretary-general of the Intelligent Connected Vehicles Division at the China-EU Economic and Technical Cooperation Association, told reporters from Securities Daily that from an operating logic perspective, whether auto dealers in 2026 can pull themselves out of loss is key to whether they can rebuild a profitable operating model. The new-car gross profit for dealers or agents of new energy vehicle brands is clearly better than that of traditional dealers, indicating that there are still opportunities to make money through the channel; the opportunities are simply concentrating on operating entities that can better adapt to new energy products, user operations, and service closed-loop management.

At the same time, OEMs also need to re-examine and define channel value. For traditional brands that still rely on large-scale dealer systems, blindly pushing inventory to dealers, using price to chase sales volume, and leveraging brand value through price discounting cannot bring long-term market share; instead, it may harm terminal service capabilities and consumer experience. For new forces and new energy brands, whether they are direct-operated or agent-based does not mean they can ignore partner earnings. Under the premise of improving channel operating efficiency, it is necessary to build a sustainable business closed loop. The “Compliance Guide for Pricing Conduct in the Automobile Industry” has already clarified that rebate policies should be clear and explicit and that dealer independent pricing rights should be respected, providing an institutional basis for rebuilding a more balanced manufacturer–dealer relationship.

Liang Yunsi, a senior researcher at Far East Credit Ratings for the auto industry, told reporters from Securities Daily that in 2026, although the total size of China’s auto market is still expected to maintain resilience, the differentiation on the channel side will further intensify. Dealers that can control inventory, stabilize prices, strengthen after-sales service, and improve user operations will gain new room for survival during the adjustments; stores that remain stuck in the old model of “using price to trade for volume and using rebates to cover losses” may continue to be squeezed out of the market. Traditional 4S stores will not simply disappear, but their functional boundaries, sources of profitability, and their relationship with OEMs will all be redefined. For the auto industry, this deep adjustment happening on the distribution side is both the inevitable cost after price wars and the required path for China’s auto industry to move from competing on scale to competing on efficiency, competing on ecosystems, and competing on services.

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Editor: Gao Jia