China’s used car market is growing rapidly, largely due to the increasing number of vehicle owners and changing consumer behavior. In the first half of the year, 16.26 million vehicles changed hands in China, with used car sales increasing 7% year-on-year to 9.38 million units, according to the China Automobile Dealers Association (CADA). (para. 2)The gap between used and new car sales is narrowing. Some experts predict that used car sales could equal new car sales by 2025. (para. 3).
Despite this growth, used car dealers in China face several challenges. More than 90% of used car dealers reported losses in the first half of the year, mainly due to fierce competition and ongoing price wars in the new car market that began in 2023 (para. 5)When new car prices fall, the value of used cars also drops rapidly, forcing dealers to sell their inventory quickly to avoid further losses. (para. 6).
Some dealers have turned to foreign trade as a temporary solution. China relaxed restrictions on used car exports in March, encouraging dealers to buy new cars, obtain temporary licenses and then export them as used cars. While this strategy is initially profitable, it is not seen as a long-term solution to the industry’s challenges. (para. 7)(para. 9).
The dynamics of the market have changed significantly over the past decade. This has been influenced by various factors, including online platforms such as Guazi.com and Uxin Ltd., which initially attracted significant investments. However, most platforms have struggled with sustainability and no dominant player has emerged. (para. 11). Car ownership is still relatively new in China, with the average vehicle age being 6.5 years in 2023. Industry fragmentation and the lack of a developed vehicle financing and leasing market have limited the supply of high-quality used cars (para. 12).
Used car sales and new car sales are interdependent. Efficient trading in one sector often benefits the other, and regulatory changes since 2016 have facilitated market growth by removing barriers such as moving restrictions and taxes. (para. 15)(para. 18)Sales figures suggest that the gap between new and used cars is closing, with used car sales approaching those of new cars. (para. 19).
Recent policy changes aim to further boost the market. These include a “trade-in” scheme introduced in March that offers subsidies for cars and aims to increase used car sales by 45% by 2027 compared to 2023 levels. (para. 21)However, ongoing price wars in the new car market are dampening these forecasts and leading to a significant decline in used car prices, often forcing dealers to sell their vehicles at a discount. (para. 22)(para. 23).
The rise of new propulsion technology vehicles (NEVs) adds complexity as their increasing market share impacts the resale value of fuel-powered cars. (para. 25)However, the decline in used car prices has made Chinese used cars more competitive in international markets (para. 27)In 2023, China exported nearly 300,000 used cars, a dramatic increase from 15,000 in 2021 (para. 29).
China’s used car market remains fragmented: nine out of ten used cars are sold by private individuals (para. 30)Unlike developed markets, there is a lack of strong players along the supply chain and large trading platforms for used cars. (para. 33)The lack of industry standards further complicates the market, as there is no binding system for evaluating used cars or accessing their history. (para. 35).
To stabilize the market, experts say automakers and dealers must play a central role. They suggest that finance companies affiliated with automakers create customized leasing plans to reduce the cost of owning new cars while ensuring a steady supply of quality used cars. (para. 38)Some car rental and ride-sharing companies have already begun tapping into the market by selling older vehicles as used cars to keep their fleets up to date. (para. 39).
Ultimately, the future success of China’s used car market is closely linked to the stability of the new car market. Industry leaders argue that reducing the number of new car manufacturers will help align long-term strategies and stabilize the market. (para. 41).
AI generated, for reference purposes only
