15/04/2024 9:50 PM

Fights Plog

Exceptional automotive

5 Things To Know About Trans-China Automotive (SGX Code:VI2), The Company Behind Automobile Brands Like BMW And McLaren In China’s Greater Bay Area


The people of China, who traversed the land in animal carts, adopted bicycles in mass numbers, with reportedly over 670 million owners at its height in the 1990s, making it once the world’s “Bicycle Kingdom”. That soon changed with greater economic reforms in the early 2000s, as rising affluence and technological advancements incentivised consumers in China to trade up to automobiles. This has led to China overtaking the US as the world’s largest automobile market since 2009, and having a total vehicle population of over 390 million as of 2021.

According to GlobalData’s Wealth Market Analytics, the number of high-net-worth individuals (HNWI) in China grew at a CAGR of 9.3% between 2016 and 2020. This puts China, home to the largest affluent population in Asia and second only to the US, globally. As a consequence, Frost & Sullivan expects consumer demand for premium automobiles, which are viewed as status symbols, to also grow at a CAGR of 9.8% from 2021 to 2025.

In that regard, the BMW brand in particular ranked second in China’s premium automobile market in terms of sales volume in 2016 and 2020. Moreover, given the push towards sustainable energy resources and a growing demand for electric vehicles, BMW intends to launch twelve all-electric models in China by 2023. This is in addition to their popular internal combustion engine models.

This is where premium automobile dealerships, like Trans-China Automotive Holdings, which carry brands like BMW and McLaren, aim to carve out their niche by selling premium automobiles to HWWI in the affluent and growing Greater Bay Area.

Trans-China Automotive (TC Auto) was established in 2009 and started trading on the SGX Catalist board from 11 November 2021. TC Auto focuses on the distribution of premium (between RMB 300,000 and RMB 1,000,000 on average) and ultra-premium (above RMB 1 million on average) automobiles through its 9 dealerships in Forshan, Shenzhen, Guangzhou, Chongqing, Changsha, and Wuhan.

Having sold over 10,800 cars in 2021, TC Auto focuses on 4 business segments: (1) the sale of new automobiles such as BMWs, McLaren, and Genesis-branded automobiles; (2) the sale of pre-owned automobiles from customer trade-ins; (3) the provision of automobile agency services, like referrals for automobile financing and insurance; and (4) the provision of after-sales services, which includes repairs and scheduled servicing.

If you are interested in the growing automotive industry in China, here are 5 things to know about Trans-China Automotive.

Having A “Moat” Or A Competitive Advantage Is Something Many Investors Look For In Companies They Invest In. Can You Share How Trans-China Automotive Has A Strong Business Advantage?

A key strategy for TCA has been to make upfront investments into large-scale urban dealership facilities, and to focus on and wealthy metropolitan areas. What this means for us is that we have big and flexible service capacity in our after-sales departments for customers who need their cars serviced. This is important because in mega-cities such as Shenzhen, Guangzhou or Chongqing, it is increasingly difficult and expensive to find suitable locations for automotive dealerships – locations that are accessible and convenient for our customers, and where real estate costs do not make it prohibitive to run a profitable dealership store. By building large-scale facilities up front, we have managed to grow annually for each BMW store that we operate because we do not run into capacity issues in our after-sales department, whereas this can be a problem for some of our competitors.

Customers who come to our after-sales departments for maintenance and repair also provide us with an opportunity to understand their automotive needs better, which in turn means we can assist the customer in choosing their next new car as well as provide us with a steady stream of quality pre-owned cars whose service history we know well. So, I would say this is a competitive advantage we have that is not easily replicated by some of our competitors who operate smaller stores. This is why in 2020, the average number of cars sold by our BMW stores was something like 80% higher than the average for all BMW stores across China, and why our ‘Service Absorption Rate’ is higher than our peers.

Read Also: 5 Luxury Cars Worst Hit By The New Additional Registration Fee (ARF) Tier

How Would You Describe The Car And Dealership Market In China And How Is It Different From Singapore?

China’s car market is the largest globally, even bigger than the US. In 2021, more than 20 million new passenger vehicles were sold in China. In order to serve such a vast market, car manufacturers distribute their cars through networks of officially-appointed dealerships. For example, BMW sold around 880,000 cars in China last year through c.600 dealerships. These dealerships are not owned by BMW, but by dealership groups such as TC Auto. This is different from a smaller car market such as Singapore, where there is usually one officially appointed dealership for any of the major automotive brands. In other words, there is competition between dealers of the same brand in China, vs. in Singapore where most car retailers have a monopoly on their representative brands.

Read Also: 5 Things To Know Before Buying Pre-Owned Cars In Singapore

Understanding Your Customers Is One Of The Best Ways To Retain And Build Business. What Are Some Things Trans-China Automotive Has Learned About Its Customers’ Changing Needs In A Post-Pandemic World?

When the pandemic started, we quickly realised that we had to change our processes to make customers feel safe when visiting our stores to browse new cars in our showrooms or to have their cars maintained and serviced in our after-sales department. We initially focused on the obvious factors, such as disinfecting all facilities on a continuous basis and enforcing distancing and mask-wearing. However, we knew this was not going to be enough. Instead, we turned to modern technology to help our customers get to know our products and services. For example, we now do daily livestreaming sessions from each of our BMW showrooms, highlighting the various cars we sell. These sessions are live and interactive, with our Sales Consultants available to answer any questions that a customer may have. Our CRM department will also be on standby to take customer queries off-line and note contact details so our sales department can follow up with booking test drives and such like.

We have also invested more in courtesy cars which we provide to customers in case their car requires more than just a quick turn-around service inspection. Before the pandemic, customers would ordinarily be fine with spending an hour or so waiting for the maintenance to be done. We have luxurious customer lounges, business centres, as well as dining facilities to suit our customers’ requirements. We now provide the option for customers who are not comfortable to wait in semi-public areas to borrow one of our courtesy cars to leave and come back later to pick up their car,

Overall, the lesson for us is that we must be flexible and innovative to respond to customers’ needs, whether this originates in factors beyond our control such as the pandemic, or whether it comes from evolving customer needs and demands.

Read Also: 5 Things To Know About NikkoAM-StraitsTrading MSCI China EVFM ETF Before Investing In It

Sustainability And ESG Have Increasingly Been A Key Focus, How Is TC Auto Committed To Sustainability?

Environmental: Our Chongqing store was one of the first ‘5S’ BMW stores to open in China in 2014. The fifth ‘S’ stands for Sustainability. To be accredited by BMW with this fifth ‘S’, we need to have environmentally sustainable processes features in our facilities. These include energy-saving processes and features, using water-based solvents and paint for body-work repairs. Beyond this, we are part of a panel of dealer groups that is looking to economically introduce solar-generated electricity in dealership facilities.

Social: We actively support training and education initiatives in the communities where we operate. Each of our BMW stores offer internships to students and recent graduates from technical schools, and we are committed to offering permanent jobs to a significant proportion of our interns. Internships include “room & board” to all interns who need it.

Governance: We have a diversified and balanced employee and staff roster. We can do more on the board level, and just recently we have initiated the process to make our board more gender-diverse.

Read Also: 5 Things To Know About China Shenshan Orchard (SGX:BKV), First Singapore Listed Pure-Play Kiwi Producer

Could You Elaborate On The Future Direction For The Group’s Business Segments?

A core component of running a strong automotive dealership business is to have a large and loyal pool of customers who return several times a year to our dealerships for regular maintenance and repair of their vehicles. This is our recurring revenue which provides us with stable and attractive margins. Where we see more opportunities within this traditional sphere of our industry is in pre-owned vehicles. This segment is starting to gain considerable traction in China in recent years, and we believe the growth in this segment represents an attractive opportunity for us.

We are also exploring how the digital economy could enhance what we do or help us to serve our customers better. We may consider looking for opportunities to invest in mobility-related solutions that go beyond selling and repairing automobiles. Being based in China’s tech hub of Shenzhen, we believe that this is an area which may be suitable to explore.

Read Also: 5 Things To Know About Daiwa House Logistics Trust (SGX Code: DHLU), A Japan Based Logistics REIT

Editor’s Note: Some answers for this article were extracted from the SGX 10 in 10 series published on 24 May 2022 and have been republished with permission. You can read more on the SGX website.

Advertiser Message

When Opportunity Presents Itself, Will You Be Ready?

It’s hard to see past the uncertainties of market volatility, with rising rates exerting inflationary
pressures on the value of money. With a stellar track record over the last 36 years,
UOB Asset Management
is well-positioned to guide your next investment move. Are you ready to capitalise on the opportunities?

For more information about UOB Asset Management, find out more here.


Source link