The 2021 China Construction machinery marketing & Post Market Conference officially kicked off on November 29. This conference gathered highly influential people in China's construction machinery industry, built a high-level communication platform, focused on "adhering to axiom", discussed many opportunities and challenges in the process of adhering to it, and contributed valuable and knowledgeable wonderful exchanges, in-depth collisions and solutions, Together with my colleagues, I will observe the current situation and look forward to the future.
On the morning of December 1, Cao Weiguo, chairman of Zhejiang Liyang Machinery Co., Ltd., delivered a speech with the theme of "risks and responses of agents in the major turning period of the industry" at the channel value-added, transformation and upgrading forum. The following are his thoughts and practical experience on the response of Zhejiang Liyang company to the industry transformation:
Construction machinery agents are experiencing a major turning point in multi wave superposition
The construction machinery industry is an industry closely related to the macro economy. At present, the industry is experiencing a major turning period of multi wave superposition, which can be divided into the following four types:
1、 Affected by the national macro-economy, the demand of the industry has declined. This round is mostly affected by real estate regulation, infrastructure construction, epidemic situation and international relations, which has a significant impact year-on-year and month on month.
2、 The construction machinery industry is cyclical downward. In the past six years, it has continued to grow rapidly, reaching a domestic sales volume of nearly 300000 units. It is obvious that next year will enter a significant downward period, which is a major turning point in the domestic mining industry.
3、 Various contradictions caused by the price war are prominent. Due to the intense price war of excavators in recent 2-3 years, the concentration of brands in the excavator industry has been highlighted and further intensified, and the brand differentiation has become more intense, which has become an obvious feature in this round of market turning.
4、 The transition from incremental market to stock market, forward market and backward market. This change has been clearly felt in the construction machinery industry, especially excavator agents and construction machinery agents. The incremental market that has lasted for more than 20 years in the past will be transferred to the stock market from the last 2 to 3 years, and the former market will slowly transform to the latter market.
Every market turn will have many problems. Zhejiang Liyang has experienced many tests in the fluctuation of construction machinery market in the past 30 years, and has walked out healthily with its own wisdom and management in each experience. Therefore, I made a summary of the challenges encountered in the transition period, so as to provide reference for individual agents to prevent risks.
Contradiction 1: the business model of agents focusing on gross profit of whole machine sales has been subverted
The 4S store experienced the same problem eight years ago. Take a BMW 4S store in Hangzhou as an example: this year, the gross profit of vehicle sales is 13 million, the gross profit of the post market is 54 million, and 100 people absorb 120%. There are more than 16 million profits a year. This is such a standard, which is that the value and ability of the channel are reflected in the price. Now the era when the circulation channel makes money by relying on information asymmetry has passed.
I think the solution to this problem is that it is unrealistic to go back to the past and ask brand companies for high gross profit. The only solution to this problem is the post market. The stock market has been formed. In a few years, we will become a post market like the United States and Europe, with gross profit accounting for 70 ~ 80% of the gross profit of the whole company. The stock of domestic excavator aftermarket will exceed 2 million by the end of 2021, and other construction machinery will add up to 7 ~ 8 million. Therefore, for agents, the aftermarket is a blue ocean that can not be ignored.
Accessories can not be ignored, because in the whole post market, only accessories are commercial projects with both scale and gross profit. In addition to accessories, we need to pay attention to the special application of excavators. Excavators have reached a special age of mature application.
Finally, I would like to appeal to the whole industry to advocate the value of technical maintenance application, realize the realization of the reasonable value of technical maintenance, make the maintenance cost reasonable and increase the price.
Contradiction 2: intensification of contradiction in industrial value chain
The balance was broken. In the past nearly 20 years, the construction machinery market has been a relatively balanced cooperation pattern, so agents can have a certain gross profit. This round of cruel price war has broken the whole balance, and the survival of agents, as a weak link in the middle, is challenged. What is the core competence of channel survival in the future? It is no longer information asymmetry, but talent advantage. Talent is the carrier of all abilities of our agents. In addition, in the era of low profit, management advantage has also become the core competitiveness.
Channels. In the past six or seven years, channels with Chinese characteristics have been formed. When some famous international brands entered China, they brought the mature distribution system and standardized agency system model to China. At the same time, there are also direct sales models such as Liugong and agents such as Sany, with 9% equity participation and penetration management model. I think any model is reasonable and has advantages and disadvantages. In my opinion, only mutual win is sustainable development.
Worthless partners will be abandoned sooner or later. It doesn't mean that our agents do not do well, so they are abandoned by the main engine factory. In fact, this point is mutual. If the brand company is of no value to the agents, it will also be abandoned. Therefore, in order to win and be fair to each other, as an agent, we have the responsibility and obligation to effectively exercise the responsibility of the agent as the end of the channel. The brand company gives us the market, so we should invest enough human and material resources to do a good job in market coverage and improve the ability of the upstream to do a good job in after-sales service. Similarly, brand companies should give us enough, and the input and output can be reasonable, which is equal.
Contradiction 3: the direct impact of different brands on the strategic response of turning agents
On April 29, 2021, China Association of construction machinery agents jointly released the article "agency dilemma in the hot environment of construction machinery", which I believe you have seen many times. There are many stories behind this round of market changes. Different brands have different strategies to deal with such market changes. Domestic and foreign investment, of which foreign investment response modes are divided into three categories: Europe and the United States, Japan and South Korea.
Category I: cat mode. Cat model has its own brand products. In order to meet the needs of low-end products in the Chinese market and the business competition of low-end products in the Chinese market, Carter has spent more than ten years to establish more than 380 supporting procurement companies, long-term R & D and investment in the machine series in the Chinese market, while retaining the original products, so as to meet the needs of users of low-end products in China, It can also participate in the market competition of China's low-end domestic brands. Enterprises have a time span. This is a strategy. There is no right or wrong. In different markets, many international brands are different in China.
The second category: Sony model. Sony TV, who can say that its products and quality are not good? But Sony did not produce low-end products to compete with Xiaomi.
The third category: Apple phone mode. Apple bypassed Nokia and Samsung and directly made iPhone.
Local brands are different, because the life of local brands completely depends on the domestic share. In the Chinese market, if you don't participate in the competition, you will be eliminated, but if you participate in the competition, the cost is huge, so this is very difficult. Therefore, the test of the firm strategy of domestic brands is its comprehensive strength, with consideration of the durability and firmness of the strategy.
The enterprise attribute of agents determines that different brands will seriously affect the competitiveness of agents in the region. Even due to the integration of these brand channels, we may be integrated. Because these brands, whether domestic or international, are marginalized or eliminated in this round of competition, we will lose the market at the same time. This is a major risk.
Contradiction 4: overdue and bad debts of large-scale credit sales due to possible decline in construction
After the market goes down, the project starts down and the working hours drop, resulting in a large area of overdue credit sales and overdue repayment of credit sales. Then the responsibility for overdue repayment and advance payment will be fulfilled by the agent, which will cause our serious cash flow problems. I suggest that you must be prepared for overdue stress tests and cash flow in advance.
I have learned that for the credit of domestic brands, please pay attention to the claims of creditors of banks and social financial institutions. There are still many problems. As far as I know, some domestic brands have a large amount of buyout inventory due to various reasons. Its essence is leverage. Therefore, we must be sober. There is a problem of profit and cash flow. If the problem of cash flow is not solved, the enterprise will be burned to death.
Contradiction 5: the contradiction between the company's income and expenses caused by the rapid decline of market demand
In the past two years, many agents have been laying off staff and reducing fees. The attribute of agents should not only meet the responsibilities of market coverage, share requirements and customer satisfaction given by the brand, so the personnel resources in this regard should be well allocated. However, in any case, we are an independent enterprise, and the enterprise input-output profit itself is also its own business. What agents should do at this stage is to reduce occupation, reduce expenses and increase income. It is very simple to say and difficult to do. The largest occupation of agents is receivables first and inventory second. The use of leverage must be careful. It is not only a matter of financial expenses, but also a matter of repayment ability. Third, in the case of contradiction between income and output loss, the first in the top three is the personnel management fee, that is, the salary and bonus fee. The second is the freight of the whole machine. The third cost is the car cost of the whole company. Other costs are behind. If you manage the first three costs well, you have managed 70 ~ 80% of the costs.
Contrary to improving efficiency and reducing input-output, the most important thing is to improve the operation effect of the whole company and improve the per capita efficiency.
Contradiction 6: the industry transition has affected the confidence of investors and employees
I want to say three things: first, Chinese agents should also return to rationality and return to the utilitarian world outlook of input and output. We are just an agent, and it is wrong to make a lot of money. Second, agents should also have a long-term business social view. Third, it's no use complaining. We must establish our own competitiveness. Only when we have value, others can't live without us. In addition, we must retain employees. This attribute of agents carries all our abilities on people. If the brain drain, you will have nothing.
Finally, a general rule, if we can only maintain today's achievements and ignore tomorrow, we will lose tomorrow's adaptability. Today we are not studying what to do in the future. We are studying what to do today to have a future. Therefore, after this round, our agents should continue to explore our stock market. We should also continue to innovate and explore to adapt to industry changes. We must do a good job around increasing income, reducing fees and efficiency. China's construction machinery and China's construction machinery agent industry will still be a very promising industry in the next decade. There is still a lot of demand and a large stock. There must be a lot of investment opportunities and business opportunities. I hope to spend a healthy next year with you. Thank you!
