Summary of China Auto Dealers Conference Call Industry Overview - **Industry**: China Auto Dealers - **Expected Recovery**: The industry is anticipated to recover in 2026 after four years of earnings decline [1][5] Key Points 1. Dealer Store Consolidation - **Fewer Stores**: The luxury car dealer segment is expected to benefit from consolidation due to capacity cuts, with a projected reduction of 10-30% in the dealer network by the end of 2026 [2][24] - **Current Situation**: Luxury car demand remains weak, with sales volumes for Mercedes-Benz, BMW, and Audi (BBA) in 1H25 at only 68% of 1H21 levels, leading to dealer oversupply [2][23] - **Store Closures**: Accelerated dealer store closures are expected in 2025-26 due to low new car margins (<1% in 1H25) making it unattractive for smaller dealers [2][24] 2. New Car Margins - **Declining Margins**: New car margins have been declining, with Zhongsheng's aggregate new car margin at 0.5% in 1H25, and expected to bottom out in 2025 before recovering in 2026 [3][62] - **Market Share Rebound**: Potential rebound in market share for joint ventures (JVs) if they can price new-generation EVs competitively [3][26] 3. Collision Repair Services - **Defensive Growth**: Authorized dealers like Zhongsheng are expected to maintain dominance in collision repair services, with gross profit from repair services growing at a 14% CAGR from 2017-2024 [4][29] - **Market Dynamics**: Independent repair stores like Tuhu are gaining market share in maintenance and small repairs [4][30] 4. Company-Specific Insights - **Zhongsheng**: Expected to see a 67% YoY earnings growth to Rmb4 billion in 2026, driven by recovery in new car margins and collision repair share gains [5][31] - **Tuhu**: Anticipated to deliver a 25% earnings CAGR from 2025-27 due to growth in app users and franchise stores [5][32] - **Yongda and Meidong**: Expected to face challenges, with Yongda's after-sales growth remaining flat and Meidong's new car business under pressure [5][32][33] Additional Insights - **OEM Strategies**: Major OEMs like Porsche, BMW, and Mercedes are planning significant cuts to their dealer networks, which will further drive consolidation in the market [68][69][70] - **Future Projections**: By the end of 2026, it is estimated that luxury car dealer numbers will fall by 25-30%, while luxury car sales volume is expected to decrease by 15-20% [75] Conclusion - The China auto dealer industry is poised for a recovery in 2026, driven by necessary consolidation and potential improvements in new car margins. Key players like Zhongsheng and Tuhu are expected to benefit significantly from these trends, while others may struggle amidst ongoing challenges.