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 Chinese started buying new cars in huge numbers about four years
ago, about the average length of time analysts say drivers will
stick with a vehicle before trading it in for a fresh model.
The secondhand market is already taking off, with sales growth last
year outpacing that for new vehicles. By volume it is still dwarfed
by new cars, which outsold used vehicles three to one. In countries
such as the U.S., that ratio is reversed, highlighting the
secondhand market's vast potential to make car ownership affordable
for millions more Chinese.
The challenge in China is to develop a modern market for secondhand
autos. The business is dominated by thousands of small trading
companies that operate out of big trading halls or open air markets
on city outskirts. Vehicles are sold tax free and ownership can be
transferred in a day but quality and fair pricing can be uncertain.
By some estimates, four in five used car transactions take place at
these markets.
For foreign automakers, "the used car business in China is very
different to anything that you would recognize in the Western
world," said Marin Burela, president of Changan Ford, the U.S.
company's China joint venture.
Global automakers have been slow to add used car sales at
dealerships but are now racing to expand into the business, which
will diversify their revenue and help build brand loyalty.
Liu Yu-chen, a 28-year-old snack food entrepreneur, plans to buy his
first second-hand car after owning a series of new vehicles, the
latest a Toyota Prado SUV bought in August.
"After conducting a good inspection, you just need to figure out
whether the car appears to have been in any accidents," said Liu as
he browsed vehicles at Guangzhou's Guangjun Used Car Market, which
houses dozens of small auto trading companies.
He is budgeting up to 1 million renminbi ($164,000) for a used Land
Rover and doesn't consider the price tag high. Luxury autos tend to
be more expensive in China because of taxes and foreign automakers
pushing the limits of what they can charge.
"What I want to buy is a well maintained car, no damage. Scratches
don't matter. If there's no big problem with the bumpers, no weird
sound from the engine, then I'll consider it," said Liu, who flew
from his home in the central city of Xian to car shop in the
southern economic boomtown because he thought they would be cheaper.
Last year in China, used car sales rose 11 percent to 4.8 million
vehicles, while new car sales rose 7 percent to 15.5 million. Ford's
Burela, speaking at the Guangzhou auto show which runs until
Saturday, said the industry expects used car sales of 6 million this
year, about 10 million in 2016 and 20 million by 2020, putting it on
par with new vehicle sales.
About half of Ford's 500 dealerships have been approved to sell
"certified" used cars that come with warranties. The company has
also opened six showrooms this year selling only secondhand
vehicles.
Dealers in China will need to focus on used auto sales to raise
their profit margins as new car sales start to plateau. In the U.S.,
about 55 percent of a dealer's revenue comes from new vehicle sales
while 25-30 percent comes from second hand sales, and the rest from
parts and servicing.
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But in China, new car sales have accounted for 90 percent of
revenue, said Ivo Naumann, Shanghai-based managing director of
advisory firm AlixPartners.
Chinese brands, unpopular because of quality concerns, will likely
fall further behind the dominant foreign brands including General
Motors, Volkswagen, Toyota and Nissan as the secondhand market
develops, Naumann said.
"Some people who probably historically would have bought a new car
because they were first time buyers, they'll say: Well I only have
$8,000, I could buy a Chinese brand, low quality, or I could buy
this second hand car from Volkswagen. And then that can have an
impact on the overall market," Naumann said.
Because China's auto industry is still new, there are bottlenecks
holding back growth of the secondhand trade. For one, there's no
system of easily transferrable temporary plates for dealers,
constraining the number of cars they can have in stock.
Another problem is lack of accurate and consistent information about
prices. Beijing-based Bitauto Holdings, which runs a car pricing and
listing website, is teaming up with U.S. company Kelley Blue Book to
launch a China price guide next year using data on 1 million
transactions from their other partner, the China Automobile Dealers
Association.
Some dealers have adopted the latest technology. Dongfeng Nissan,
the Japanese company's China joint venture, has its own system to
assess trade-in values. Staff use iPads to carry out a step-by-step
check. They can photograph scratches or other damage and upload it.
"The system will automatically prompt an overall score on this car
and a recommended resale price to staff," said deputy general
manager Yasuhiro Konta.
Currently, most owners who want to sell a car will typically take it
to between three and five traders to get an idea of price, usually
an estimate by a senior employee based on their own judgment, said
Bitauto's chief financial officer Andy Zhang.
"The whole experience is fairly insecure," Zhang said. "It's very
important to have those benchmark prices out there."
[Associated
Press; KELVIN CHAN, AP Business Writer]
Follow Kelvin Chan at
http://twitter.com/chanman.
Copyright 2013 The Associated
Press. All rights reserved. This material may not be published,
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