Autohome’s Strategic Shift
By Doug Young
In a country where nearly everything has always been about the latest and greatest, China is now witnessing a tectonic shift in consumer behavior. The slowing economy has prompted a newfound interest in used items, including cars, smartphones, and homes. Recognizing this change, Autohome Inc. is embracing a major shift by venturing into the used car trading industry.
Contrarian Bet on Used Car Trading
For a decade, Autohome has been a stalwart in the car services sector in China. The company gained widespread recognition following its IPO on the New York Stock Exchange. However, as China’s economy starts to mature, the growth in new car sales has tapered off. In a welcome divergence, the used car market is gaining momentum. As a result, Autohome anticipates a rise in revenue from used car trading services in the coming year.
Autohome’s foresight demonstrates a willingness to adapt to market dynamics. In a country where traditionally, new cars outsell used cars by a wide margin, the company’s shift is akin to breaking new ground. While the market has favored brand new purchases for years, new homes and gadgets have been the norm. By venturing into used car trading, Autohome is making a bold but calculated bet.
The State of the Market
Having once traded at nearly seven times its IPO price when China was the world’s largest auto market, Autohome’s shares still remain over 60% ahead of their IPO price. The company maintains a premium valuation compared to domestic peers like Cango and Kaixin as well as U.S. giant Carvana due to its consistent profitability. Nonetheless, its growth has slowed in line with the broader market trend.
China’s overall car sales grew by just 3% year-on-year in the first 10 months of this year, signaling a maturing market. This slowdown is in stark contrast to the buoyancy witnessed in previous years. However, the used car market presents an opportunity for Autohome to redefine its revenue model and capture a niche where potential growth is palpable.
Diversification Into Used Car Dealer Memberships
Autohome is diversifying its revenue streams by expanding its membership services to include used car dealers. The company, which currently derives around 30% of its revenue from membership fees paid by new car dealers, is now targeting used car dealers for a new category of memberships. By setting its sights on capturing 40% to 50% of the nation’s 300,000 used car dealers over the next three to five years, Autohome is ambitiously leveling the playing field between new and used car dealerships.
Expansion of TTP Used Car Auction Platform
The other pivotal move is the expansion of TTP, a used car auction platform in which Autohome holds majority ownership. Having achieved profitability for the first time, TTP has generated approximately $100 million in revenue, marking a 15% increase from the previous year. The platform’s success is underpinned by its commission-based revenue model, which mitigates inventory risk.
Furthermore, Autohome’s plan to integrate TTP with its “Autohome Space” centers, a burgeoning chain of experience-oriented outlets providing holographic displays and test driving services for both new and used cars, adds a new dimension to its strategic diversification. These strategically designed centers are not only a retail outlet but also function as an experiential space, providing a unique way for customers to interact with the products before making any purchasing decisions.
As the industry archives brim with tales of companies that thrived on the fringes of innovation, the narrative of Autohome’s foray into used car trading is one for the books. The company’s strategic shift underscores the importance of adaptive strategies in the ever-evolving market environment. In the case of Autohome, this change in direction might just be the key to unlock a treasure trove of opportunities in an uncharted territory.
This article is from an external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.
