Founded in 2014, Meili Auto Holdings Ltd was a subsidiary of Meili Finance until 2017. They offered used car loans through their online platform as well as offline sales channels. Based out of Shanghai, this Chinese startup was funded by investors like JD Digits, GX Capital and Delta capital among others. However, despite having secured funding of almost $194.9 Million, the company was forced to shut down in March 2020.
There are a multitude of reasons that contributed to their failures. Even before the pandemic, there were issues regarding company policy, practices and tactics that did not paint them in a good light. However, the Covid-19 pandemic is regarded as the final nail in the coffin, as it was for many small and large businesses who did not show resilience.
Before the Pandemic
Meili Auto Holdings had filed for a $100 Million IPO in the New York Stock exchange in 2019 and had reported having helped over 200,000 customers get their used car loans in the year 2018. They had also reported a revenue of $143.4 Million in the first half of 2019
However, the company was being probed by Chinese authorities for predatory lending practices including tricking unaware customers into applying for larger loans than necessary, not providing copies of contracts in some cases, and even terrible debt collection practices. This had all culminated in their offices being raided in multiple cities by the Police.
The Pandemic effect
While the company reputation was tarnished due to these raids, the eventual demise is said to have come due to Covid-19. Since China was the origin point of Covid, the measures taken to prevent spreads were hurting Meili Auto Holdings. The pandemic affected auto sales in general, suffering a record fall of 42% in the first half of 2020.
The Final Fall
On March 16th, 2020, Meili Auto Holdings announced its shutdown. They terminated all the employees and announced that they would receive minimum wages for January and February. The company was reported to have struggled during the pandemic and was facing a severe cash crunch. As the situation grew worse, they could not hold any further in fear of bleeding out more money.
Being a company that facilitated financing for individuals, Meili Auto Holdings could not adapt to the changes that occurred due to the pandemic. As car sales plummeted, so did their business. They could not diversify their business strategy or their product and ended up losing money every day. Though they cut their losses pretty early, they still ended up losing out in the long run. Of course, the investigations into the company and the raids did not help either.
This example shows how a lot of traditional companies have been affected by Covid-19. The lack of flexibility in such enterprises reveals their fragility, as a lot of companies aren’t necessarily able to adapt to a worldwide lockdown. Therein lies the problem.