Chinese used car market expected ‘to have an explosion in the coming decade’

11 May 2017

China is the world’s biggest new car market, with some 24.4 million cars sold in 2016 according to the China Association of Automobile Manufacturers (CAAM). As reported in an article by WardsAuto on Wednesday, Piston Intelligence, a consultancy based in the city of Guangzhou in southern China, estimates that ′13 million used cars are on the market in China.’ This number is actually relatively still small as it equates to approximately half the size of the new car market. However, WardsAuto reports that used car sales are ′expected to take off in the next few years as inventories rise and consumers become more comfortable buying second-hand vehicles.’ 

′The used-car market in China is expected to have an explosion in the coming decade, because the ratio of used to new is opposite compared to the U.S.,’ Kevin Huang, director-marketing and sales at Piston Intelligence, told WardsAuto.  

China’s used car market grew by a compounded annual growth rate of about 17% from 2010 to 2015 but the ratio of used to new car sales in China is only 0.26, compared with 2.5 in the US, according to Piston Intelligence. This is in line with analysis conducted by Autovista, which reveals that the used car markets of the five big West European economies are two to three times greater in volume terms than their respective new car markets. 

However, new car sales growth is slowing in China as stimulus measures designed to boost demand are set to end. The government’s purchase tax incentive, which halved tax on vehicles with engines smaller than 1.6 litres, will be scaled back this year (to 7.5%) with tax rates returning to the full 10% rate by 2018. CAAM reports that new car sales grew by 14.9% year on year in 2016 and ′sales of passenger cars with engine capacity of 1.6L and below reached 17,607,000 units, up 21.4% year on year, accounting for 72.2% of the total sales of passenger cars.’ 

Furthermore, the Chinese government taxes used cars at a relatively high rate. 

Lena Aw, a spokesperson for BMW Group, told WardsAuto that BMW sees the Certified Pre-Owned (CPO) market as a ′not yet fully explored profit stream’ to boost dealer profitability but also said profits in China are higher than on those without that designation. 

BMW sold 50,000 BMW and Mini CPO units in China in 2016 and Aw said ′We expect the volume to increase significantly’ in 2017. Aw added that the CPO concept is not well-known in China and so BMW is putting a lot of effort into branding the scheme. 

Jiang Shan, director of Power Information Network, a unit of J.D. Power China told WardsAuto ′that kind of policy helps overcome one of the main barriers to faster growth in China’s used-car market – a lack of trust.’ Jiang also highlighted that ′transaction taxes on used car sales can be high and, until recently, used cars could not be sold outside the province they were registered in. Some city-level governments still restrict sales of used vehicles from outside their boundaries.’ 

These cost and trust issues have limited the development of the Chinese used car market but WardsAuto reports that ′a growing number of online sites provide information on a car’s history, giving consumers more confidence’. Huang also told WardsAuto that ′Chinese consumers, beginning to see the value in used cars, are buying them as a second car.’ 

According to Piston, franchised dealerships account for only about 5% of used-car sales and fewer than 10% of dealerships have their own-brand used-car sales operations. Independent dealers account for the majority of used-car sales in China, and consumer-to-consumer transactions, some conducted online, account for 15%, Piston estimates. 

Shanghai Chengxin, which was established in 2010 as a joint venture among General Motors China, Shanghai GM and Shanghai Auto Industry Sales, sells all brands of used cars. Ford China is also developing a CPO program and a Ford China spokesperson told WardsAuto: ′We are incorporating the learnings into used-vehicle programs, though the numbers remain small.’ 

Ultimately, WardsAuto reports that ′Piston figures the real growth in China’s used car market will occur between 2019 and 2023, when the growth rate will rise to 20%.  Sometime in 2020, the number of used cars sold will equal the number of new-car registrations at 23.5 million units, according to a Piston study.’