Wednesday, February 21, 2018
Business

Auto sales boom spawns a used-car market in China

GUANGZHOU, China

As car enthusiasts converge on the annual Guangzhou auto show, few have anything except a shiny new set of wheels in mind. But the explosive growth that has transformed China into the world's largest auto market is also giving life to a new industry here: used cars.

The Chinese started buying new cars in huge numbers about four years ago, about the average length of time that 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 that for new cars, which outsold used vehicles three to one. In countries such as the United States, 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 the outskirts of cities. 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.

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. 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 used car sales 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 United States, about 55 percent of a dealer's revenue comes from new vehicle sales, while 25-30 percent comes from secondhand sales, and the rest from parts and servicing. But in China, new car sales have accounted for 90 percent of revenue.

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 transferable temporary plates for dealers, constraining the number of cars they can have in stock.

Another problem is a 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.

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