4S Shop Closure Wave May Extend Until 2028, What Can Traditional Investors Rely On to Survive These Three Years?

Desolation fills the eyes, a muddled account in hand; words passionate before others, tears streaming in private.

A few days ago, I attended a gathering within the industry, and the authorized car dealership investors present all seemed to be weighed down by worries. Since 2020, the survival pressure on this industry has been evident to all.

In 2024, I predicted in the article "Over 8,000 4S Shops Have Closed, and Another 10,000 May Be Eliminated in the Next 5 Years: Where Have Their After-Sales Customers Gone?" that "this round of 4S shop closures may not stabilize until 2028, by which time only about half of the 4S shops might survive."

In the next few years, at least another 10,000 or more 4S dealerships will have to close down. Nowadays, "survival of the fittest" is no longer just an empty phrase.

01. The Golden Age and Survival Crisis of the 4S Industry

Traditional 4S dealership investors are mostly people born in the 1960s and 1970s, or even older. When 4S dealerships began to emerge in the late 1990s, they were around 30 years old. Unlike their predecessors or leaders who were familiar with the planned economy, they were also exposed to modern management and business concepts from the West. Coupled with the nationwide automobile boom brought by China’s economic takeoff, most of them achieved significant business success.

But to be fair, in the era when obtaining authorization from joint venture brand 4S stores basically meant guaranteed profits, their success relied more on the monetization of "personal connections." The internal corporate development and strategies for external competition were largely derived from training and mandatory assessments imposed by the OEMs. They were still relatively naive about the survival and competitive logic of modern enterprises, or only had a fragmented and unsystematic understanding.

The competition between enterprises ultimately boils down to the innovation capability, professional knowledge, and comprehensive qualities of a high-quality talent team. High-quality talent teams have risen from the category of labor force to the level of human capital, determining the enterprise's technological innovation, product quality, and market adaptability.

Human capital is different from traditional capital (such as funds, equipment, and land). It is acquired and accumulated through knowledge renewal, skill enhancement, and improved collaboration efficiency, and has become a strategic resource for enterprises to gain sustainable competitive advantage.

In the fiercely competitive automotive industry of 2025, most investors who once relied on personal connections to obtain joint venture brand 4S dealership authorizations now find themselves deeply mired in losses, unable to extricate themselves. Salary cuts and layoffs have become routine practices for many of these investors.

However, in this round of personnel changes, how to make decisions about staffing has become their most difficult issue. Here, it is recommended to select and appoint personnel based on the four types of combinations across the two dimensions of morality and talent, thus strengthening the company’s competitive barriers.

02. The Dilemma of Personnel Changes Amidst a Loss-Making Quagmire

Here, virtue does not refer to the traditional sense of moral and ethical values, but rather to the recognition of corporate culture and value orientation. It encompasses professional ethics such as dedication and devotion to work, as well as the personality traits of being willing to take responsibility.

The "talent" here does not refer to eloquence or proficiency in arts such as music, chess, calligraphy, and painting. While possessing these is certainly a plus, what matters more are historical achievements, skill levels, learning ability, and other comprehensive qualities.

Four combinations of the two dimensions of virtue and talent: possessing both virtue and talent, having virtue but no talent, having talent but no virtue, and lacking both virtue and talent.

For those who are both virtuous and talented, they can be entrusted with significant responsibilities, such as the legal representative and CEO of a group company, directors at various levels, store managers, and other positions with major stakes.

If it is a single store, key positions such as general manager, department manager, and team leaders of various work groups are entrusted to individuals who have mostly grown together with the investor from the very beginning. Their character and abilities have been proven many times over through both time and various events.

Talents with both integrity and ability are rare and hard to find. For instance, without Joe Tsai's assistance, Mr. Jack Ma's Alibaba might not be as impressive.

For those who lack both virtue and talent, many investors' first reaction is to sweep them out the door and resolutely not retain them. In fact, this is a misconception. As mentioned earlier, "virtue" here does not refer to traditional moral virtues. Of course, those who have been convicted and sentenced for criminal activities are not included in this context.

The term "lack of virtue" here refers to having no sense of belonging to the company, lacking initiative and enthusiasm for work, and having an indifferent and unconcerned attitude towards work. "Lack of talent" refers to having mediocre work skills, being perfunctory in training with poor results, and being unable to offer any opinions, suggestions, or even ideas for improving work deficiencies.

Employees who lack both virtue and talent are mostly those in low-paying auxiliary positions. For these employees, internal training and continuous replacement are indispensable. However, it is impossible to completely eliminate them. The purpose of training and replacing them is to identify those with potential and transform them into employees who have virtue but lack talent. Employees who have not yet demonstrated any virtue or talent should either seize the time and opportunity to prove themselves or leave promptly to spare both parties.

As for how to identify and employ employees who have virtue without talent and those who have talent without virtue, interested fans can contact the author for discussion.

After categorizing employees based on virtue and talent, suitable talents should be retained as much as possible and not allowed to leave freely. Regarding employee turnover, Mr. Jack Ma once made a classic summary of two main reasons: inadequate pay and a wounded heart.

When it comes to the current business model of car dealerships, the reason for not making payments might genuinely be due to financial constraints. Here, I want to speak positively on behalf of these dealership investors. As the saying goes, you don't know the cost of running a household until you're in charge. In which dealership are the income items not few and the expenditure items endless?

In an authorized store with 100 people, if each person makes one insignificant mistake per year, it should be considered forgivable, right? But what if all these mistakes were made by one person? Would it then be unforgivable and necessitate punishment?

Unfortunately, as the investor of this store, he is equivalent to the person who makes 100 mistakes a year, because he bears the ultimate consequences of these 100 mistakes, even though he did not make any of them. So, don't just see the thief eating meat and ignore the thief getting beaten.

If it's possible that the money wasn't in place due to certain reasons, then when it comes to feeling wronged, investors are 100% not exempt from blame. Every corporate executive I've encountered who's resigned has experienced at least one instance of "the greatest humiliation of their life" during their resignation.

The Way to Break the Deadlock: The Threefold Approach to Retaining People through Salary, Emotion, and Career

At this point, the three key factors for retaining employees—compensation, emotional connection, and career development—can be flexibly combined and utilized.

When it comes to retaining employees with salaries, some investors might be dismissive, much like a view shared by a certain boss at a gathering: What salary level is high enough to retain employees? I lose millions every year, while they earn hundreds of thousands to millions annually. They earn more than I do, so who is actually the boss? I feel like I'm working for them, not the other way around!

Indeed, given the current state of authorized dealerships, even if Jack Welch were to come, he would likely face deductions in performance. The annual income of the chairpersons and general managers of the eight listed automotive dealership groups in China for 2024 has almost entirely decreased compared to 2023, with the chairpersons experiencing a larger decline. The annual income of Zhou Xiaobo, the chairman of BetterLife Holding, has just exceeded 200,000 yuan.

Retaining employees through salary is not necessarily about reaching a certain absolute number. Confucius said: "Do not worry about scarcity, but rather about uneven distribution; do not worry about poverty, but rather about instability." I have always believed that the compensation system is the most fundamental system of an enterprise, and it is the thickest baton in the orchestra of interests.

As the initial formulator and final approver of the compensation system, investors provide employees and talent with a predictable and strictly enforceable compensation system. This means not complaining of losses while making profits, nor rallying employees to share losses during downturns, thus avoiding feelings of inequality and insecurity among them. By doing so, the basic principle of retaining employees through fair compensation is achieved.

Emotional retention is not the cake for an employee's birthday, nor is it the red envelope blessing from higher-ups to subordinates during the annual meeting. Would anyone give up the idea of resigning because of these? When there is a conflict between the satisfaction of customers, shareholders, and employees, putting employee satisfaction first is practicing emotional retention.

When I conducted an employee satisfaction survey while managing a store, the owner and management expected the top dissatisfaction to be low wages. However, the result showed that the most dissatisfaction, ranked first and mentioned most frequently, was that administrative and finance staff could go for lunch first and were served more food, making other employees feel like they were eating leftovers!

Dignity is the foundation of emotions; how can emotions continue without dignity?

The foundation of retaining talent through career development lies in timely and appropriate career planning. By providing an employee with career aspirations the necessary knowledge, skills training, and a platform to showcase their talents, a company facilitates their career advancement. This process transforms an employee lacking in virtue and talent into a pillar of virtue and capability, achieving great success through persistent efforts.

Avoid promoting someone three levels up in one go, as it can disrupt the mindset of the entire team. Saplings that grow steadily in place over the years have a higher survival rate than towering trees that are hastily promoted or transplanted; the same applies to talent.

Nowadays, the first-generation entrepreneurial franchise store investors are gradually aging. Their knowledge systems and areas of expertise inevitably bear the imprint and limitations of their era, but they also possess unique skills and abilities that investors from other eras and fields do not have. Moreover, as industry competition becomes increasingly fierce, the challenges they face are actually comprehensive.

Whether out of necessity or driven by passion, they are still navigating the turbulent waters of the competitive market, using their hard-earned capital and aging bodies to engage in the most authentic business management. Regardless of success or failure, these experiences themselves are a wealth to society, and we should applaud them for their efforts.