China's Used-car Market Set to Regain Speed

Several factors will come together to boost market momentum this year

By MICHELLE HSU

China's used car market had been booming for several years before growth cooled down in 2013. In contrast to the double-digit growth of previous years, the increase that year reached only 8.60%, bringing sales of used cars to 5,203,300 units.

Market observers believe that China's used car market might strengthen its growth momentum this year thanks to the improved policy environment and rising effectiveness of digital trading platforms.

Passenger cars remain the mainstay of used vehicle transactions in China where, in 2013, sales of basic used passenger cars reached 3,049,400, an increase of 12.37%.

Used car dealers say that at this stage, the biggest factor inhibiting sales is the government's environment protection policy, which limits the transfer of certain models of cars, mostly older ones. Limiting environmental standards apply to most of the country, and in general only cars that were manufactured in 2008 or later meet the required standards and will thus be eligible for sale in the used-car market.

A rising used-car market usually contributes to sales of auto parts and accessories needed for car maintenance and repair, and a revitalized used-car market will drive the auto parts market.

Furthermore, as market observers point out, China's automotive society is constantly maturing, and new car sales are largely dependent on circulation and replacement through the used car trade.

Official Guidelines

The establishment of a mature, standardized used car trading environment is needed to boost used-car sales. In this regard, the announcement of the long-awaited “Used Car Appraisal Technical Specifications” by the Standardization Administration of the central government on December 31, 2013 is seen as crucial to used-car trading in China.

The implementation of the new specifications, set for June 1, 2014 will give China's used car-market a powerful boost by providing industry standards for second-hand vehicles.

This, some used-car dealers say, will alleviate the long-standing problem of information opacity which has been a major concern plaguing the market.

In used-car transactions, many buyers do not have a good idea of a vehicle's worth, and some dealers take advantage of this opportunity to buy low and sell high. After the specifications come into effect, the chaos in the used-car market will begin to give way to standardized, or even branding, operations.

However, as car dealers point out, there is still room for improvement in used-car policy. Imperfect and temporary ownership registration, along with tax pressures, have become important limiting factors in the acquisition of used cars. Industry professionals have long called for these issues to be addressed, so far to no avail.

“If we want to further standardize and promote the development of the used-car market," commented an industry observer, "we need to establish national standards for the appraisal of used cars and a temporary property registration system, as well as to adjust VAT collection methods for used car transactions.”

Diversified Sales Channels

The diversification of sales channels can also boost used-car trading. Single-transaction service for the sale of used cars appeared around 2010, giving wider access to the used-car market through such methods as auctions and branded used-car sales services. The market's certification system is also becoming more mature and comprehensive, making buying and selling on the used-car market more convenient.

        Currently, used-car deals are carried out at used-car markets, brand outlets, online, and through dealer groups. Used-car markets have traditionally accounted for the lion's share of sales, but in recent years the other marketing approaches have begun taking a bigger share.

In the short term, market observers say, used car markets will continue to be the dominant method. Brand outlets, however, are expected to become the fastest-growing type of trading in this field.

Right Timing

Some optimists expect that this year will see the beginning of explosive growth in the used-car market. “After the cooling down in 2013," commented  Shen Rong, deputy secretary general of the China Automobile Dealers Association, "the first explosive growth in the used car market is expected to begin in 2014; if the explosion doesn't make itself obvious this year, it's bound to do so in 2015.”

Shen believes that multiple factors will come together this year to make this happen. First, the long-standing issue of sources of cars for the used car market will be fundamentally improved. That's because the last period of explosive growth in the market began in 2008-2009; and as the average replacement cycle for cars is about 6.2 years, another one is due very soon.

Mature Market

Trading on China's used-car market scored an annual growth rate of nearly 22% in 2009, after which began a slowdown in growth that lasted through 2013.

“A rate of sales growth that is lower for used cars than for new cars is unthinkable in a society with a mature automotive market,” said Shen, who pointed out that in the U.S. market, for example, when sales of new cars peaked at 16 to 17 million, used car sales stood at around 40 million.

According to the China Association of Automobile Manufacturers (CAAM), the trading volume for used cars in China is expected to reach 10 million in 2016—double the level of 2013. Along with the significant changes in the volume of transactions, there will also be a clear increase in on-line transactions.