Dabaiqiche (大白汽车), the car financing platform of the online credit provider Qudian (趣店) is shutting down several of its stores, apparently, because of a bombed business model, tech portal 36Kr reports.
The platform has reportedly shuttered over 40 of its 179 stores.
Dabaiqiche was started almost simultaneously as its parent organisation Qudian was listed in October 2017. Introducing a new concept to the car financing business, Dabaiqiche would pre-buy cars. The customer would get both the financing service and the car from their outlets.
The platform has cooperation agreements with car manufacturers to purchase vehicles at low prices in order to provide users with a low-threshold car purchase with a 10% down payment. During the financial lease, which can last up to four years, the user leases the car from Dabaiqiche, which still has the ownership of the vehicle. When the lease expires, the ownership is transferred to the user.
The platform was aimed primarily at young people to help them buy their first car. Qudian had high hopes on its baby and Luo Min, Qudian's founder and CEO personally led the platform’s incubation team.
But the plan seems to have backfired. The company has acquired a large stock of cars that it is unable to sell. Dabaiqiche's model built around self-built stores, centralized purchase and lease of heavy assets have become a burdensome liability.
Voices from the industry term Dabaiqiche's business model is an inefficient one.
“It is a costly model in which efficiency is low. The chain store model is doomed,” Yao Junhong, CEO of Souche Automotive Services, declared to the financial portal Uni-Fin.
According to data provided by the company, Dabaiqiche sold 6,324 cars in Q1’18. The sale and lease of those cars produced a revenue of CNY 546 million. Therefore, each car produced CNY 86,000 in revenue for the company. Luo Min had set a target of selling 100,000 cars this year.
Assuming that the company spends CNY 86,000 on average to purchase a car, Dabaiqiche would have to burn CNY 8.6 billion only to purchase the cars. The platform still has to add up the customer acquisition cost, store rental, monthly salaries of more than 660 employees and other expenses. With such high operation costs, the company began to face losses. That is probably why the 100,000 target was lowered to 30,000 in the second quarter. This also explains why Dabaiqiche is now shutting down several of its stores.
Since its launch, Dabaiqiche became one of Qudian's flagship products, apart from its loan service. Luo Min declared in April 2018 that “automobile new retail” is a potential market of USD 100 billion.
“Qudian's original plan was to lead its 67 million users to Dabaiqiche, but the conversion rate has been disappointing”, an employee at Qudian disclosed to Uni-Fin.
Shen Lin, a veteran practitioner in the automobile field, also shared his point of view with Uni-Fin: “A person who is willing to take a CNY 1,000 loan should be blacklisted from a car financing service.”
In order to attract customers, Qudian started Baiwandaren (百万答人), a live Q&A streaming video service in January this year. The service was added to Dabaiqiche's app. Qudian even invested CNY 100 million to attract users. But instead of having the desired effect, Baiwandaren received harsh criticisms from netizens over to its 'poor' design, constant lag and 'low quality'.
Qudian had a cooperation agreement with Alipay, Alibaba's online payment platform. Alipay was one of the main customer acquisition channels for Dabaiqiche. However, this agreement expired in August 2018. Dabaiqiche did not only lose an important channel, but it also lost access to users' Sesame Credit Score (Alipay's credit evaluation). This was a hard blow to Qudian. A year ago, Luo Min admitted that one-third of Qudian's new clients came from Alipay.
According to Qudian's financial report, the company signed cooperation agreements with 8 licensed financial institutions and only less than 1% of new loans in 2018 defaulted. In Q2 2018, Qudian had a non-GAAP profit of CNY 738 million, a growth of 42% compared to Q1. Despite this good figure, Qudian's development has gone through many complications. In June 2017, Chinese regulatory bodies established a tighter control on loans to college students, one of Qudian's main business lines. In April 2018, the Chinese government set new regulations for credit companies that limited interest rates of loans. Faced with tighter regulations, many fin-tech companies tried to find other business lines. Qudian resorted to car financing.
But Dabaiqiche has not lived up to expectations and has instead become one of Qudian's main challenges. However, the car lease financing market is still at an early stage in China, which means there is still plenty of room for growth.
According to a report by the global consulting firm Roland Berger, currently, just 2% of Chinese car buyers use some kind of car financing against 46% in the US.
For Qudian, a company with a finance DNA, it still remains to be seen if it can develop its “automobile new retail” or allow Dabaiqiche to wither away.