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At the close on July 17th, Guanghui Auto (600297.SH) was firmly locked at its limit down.

Closing at 0.78 yuan per share, its market value dwindled to just 6.466 billion yuan. This is a car dealership with revenues exceeding hundreds of billions. In 2023, Guanghui Auto achieved operating revenue of 137.998 billion yuan, an increase of 3.34% over the previous year.

"Seek the advantage, not blame the people." (The Art of War by Sun Tzu) A friend of Duge who works at Guanghui Auto said, "The manufacturer's rebates can no longer support the vicious price wars in the market, it's all about defending territory." She added sorrowfully, "Look, the upstream and downstream of gasoline vehicles are collapsing, and it will also affect GDP and employment."

From Duge's perspective, Guanghui Auto's march towards delisting stems from multiple reasons.

The actual controller of Guanghui Auto is Sun Guangxin, the "richest man in Xinjiang." Sun Guangxin holds a 32.93% stake in Guanghui Auto through Guanghui Group. However, Guanghui Group itself, under the current circumstances, has also expressed its intention to withdraw. Recently, Guanghui Group plans to transfer its 24.5% stake in Guanghui Auto to Jinzheng Technology after December 19, 2024.

Sun Guangxin, who has waged battles in the capital market for many years, is known for his sharp and daring style, and he does not easily give up.

Recently, the news of Ma Weidu, a collector, owing wages has caused a great uproar. This famous collector's strength pales in comparison to that of Sun Guangxin, a well-known collector in the capital circle. More than a decade ago, it was said that Sun Guangxin had collected 500 famous paintings, which the collecting circle estimated to be worth tens of billions. At that time, the capital circle spoke highly of Sun Guangxin's use of collectibles for financing.

When Sun Guangxin was adept at collecting, Guanghui Group's capital operations were indeed quite sharp. Guanghui Auto, a subsidiary of Guanghui Group, went public through a backdoor listing with Mailuo Pharmaceutical in 2015. After going public, Guanghui Auto embarked on a frenzied fundraising spree. Concurrent with the fundraising, Guanghui Auto aggressively pursued acquisitions. In 2016, it spent over HK$10 billion to acquire a 75% stake in Baoxin Auto (01293.HK). In the same year, Guanghui Auto also acquired Pengfeng Group and Zunrong Group. In 2018, Guanghui Auto spent a huge amount to acquire partial equity in XCAR, 100% equity in Zhongguo Baohong, and five companies under Pangda Auto, among others. With its seemingly endless acquisitions, the well-funded Guanghui Auto finally became China's largest auto dealership group.

However, big does not necessarily mean strong. By 2022, Guanghui Auto incurred huge losses, with operating revenue of approximately 133.544 billion yuan and a net profit loss attributable to shareholders of listed companies of approximately 2.669 billion yuan.

Moreover, Evergrande's cooperation with Guanghui Group also came at a heavy cost to the latter. On September 21, 2018, Guanghui Group, its actual controller Sun Guangxin, and Evergrande Group signed a "Strategic Cooperation Agreement" and an "Investment Agreement." After the transaction was completed, Evergrande Group held a total of 40.96% equity in Guanghui Group, becoming its second-largest shareholder. However, with Evergrande Group's collapse, it withdrew from Guanghui Group, leaving behind problems that cost Guanghui Group dearly.

From a market perspective, the 4S stores under Guanghui Auto are primarily traditional energy automobile brands. Guanghui Auto is also aware of the need to increase sales of new energy vehicles. However, turning around an elephant is no easy feat, and time is of the essence. As the penetration rate of new energy vehicles surged in 2024, Guanghui Auto could only grab a small slice of the pie. Guanghui Auto issued a performance forecast, predicting a net profit loss of 699 million to 583 million yuan for the first half of 2024, with a deducted net profit loss of 872 million to 756 million yuan.

Apart from Guanghui Group's own reasons, the intense competition in the automotive market made it even harder for Guanghui Auto to recover. Since January of this year, after a certain automaker fired the first shot in the price war, a comprehensive price war has unfolded in the automotive market. During this price war, traditional energy automakers and joint venture automakers bore the brunt of the injuries, with dealerships like Guanghui Auto also suffering heavily.

In fact, the rebates provided by manufacturers are simply unable to compensate for the profit losses incurred by the price war. Some senior executives of automakers have also discussed the current price war with Duge. These manufacturers are also reluctant to engage in such frenzied price wars, as they damage themselves while downstream dealers simply cannot withstand the impact. However, some automakers want to shake up the industry through price wars, forcing more automakers to participate. The damage caused by vicious competition to the automotive market is becoming increasingly apparent.

The delisting of Guanghui Auto this time is not just the tragic song of one enterprise but also the impending tragic song of many other struggling dealers and traditional energy automakers. A friend of Duge lamented bitterly that many new energy vehicles are playing the capital game and eating the dividends of policy subsidies, affecting national taxation and employment, which cannot be easily compensated for by the short-term popularity of new energy vehicles.

Duge also wants to say that the market needs fair competition, and traditional energy vehicles have already encountered de facto discrimination. Not only are they discriminated against in license plate registration, but the new energy vehicle subsidies that began in 2014 should have been phased out long ago but have been continuously delayed. This policy instability is unfair to traditional automakers.

In his book "Hillbilly Elegy," J.D. Vance writes, "The best escape for hillbillies is to leave." However, for automakers and dealers like Guanghui Auto, they cannot leave or escape but need time to adjust and fight defensive battles in a relatively fair competitive environment.

Author | Duge

Source | CarVisibility

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