2024-07-24
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Author Lin Keying
Edited by Yang Hao
“I’ve been waiting for a whole day and not a single customer has come!”
At around five o'clock in the afternoon, at the Huaxiang Second-hand Car Market in Beijing, a second-hand car dealer stood up angrily, swearing as he packed up his things and prepared to go home.
This is the largest second-hand car market in Beijing, and has long been regarded as a barometer and weathervane of the industry. Since the beginning of this year, such a fruitless day has become the norm for car dealers in the market. Li Kong (pseudonym) sat under a parasol, leaning back in his chair and squinting his eyes, playing an audiobook on his phone. Throughout the afternoon, only two or three people came to him to inquire about the price, and in the end, no deal was made.
"Do I need to tell you what the current situation is like for used cars?" Li Kong raised his hand and pointed to the empty middle of the road under the scorching sun. "You can tell with just one look. No one is buying cars. It's like this every day."
Liu Yan (pseudonym), a car dealer who has been engaged in second-hand car trading for ten years, told Tencent Auto's "High Beam",The business depression this year is unprecedented, especially since April. We used to sell two or three cars a day, but now we can’t sell one in ten days or half a month.It is normal for a car to be parked there and not sold for a month or two.
Data from the China Automobile Dealers Association showed that from January to June this year, the cumulative transaction volume of used cars was 9.3829 million, a year-on-year increase of 7.01%.
Although the number of transactions continued to grow, Wang Meng, an expert at the China Automobile Dealers Association and a senior second-hand car practitioner, said that the increase was far below expectations. Looking closer to June, the national second-hand car market transaction volume was only 1.519 million vehicles, a year-on-year decrease of 0.93%, and the decline was even more obvious.
With the rapid development of China's automobile industry, the used car industry is also entering a critical period. The China Automobile Dealers Association believes that in 2022, the ratio of new cars to used cars in China's automobile market will only be 1:0.68, which is much more room for penetration than the United States (1:2.5), Germany (1:2.58), and Japan (1:0.83).
Sheng Qiuping, Vice Minister of Commerce, pointed out earlier that used cars are an important link in the entire life cycle of automobiles. Invigorating the circulation of used cars can revitalize the stock of cars, drive the increase in new car consumption, and drive the automotive aftermarket, which is very important for promoting tiered automobile consumption.The Action Plan for Promoting the Trade-in of Consumer Goods issued in March this year proposed that by 2027, the volume of scrapped cars recycled will double compared to 2023, and the volume of used car transactions will increase by 45% compared to 2023. According to data from the China Automobile Dealers Association, this means that the volume of used car transactions in 2027 needs to reach 26.6993 million vehicles.
At the same time, China's auto industry is undergoing dramatic changes: new energy vehicles are rising rapidly, with a penetration rate of more than 50% for the first time in the first half of April this year; market competition is intensifying, and the price war has spread from last year to this year. Changes have spread from new cars to used cars, and used car dealers are facing a new environment and impact.
"This is the most difficult year in history." Zhou Shou (pseudonym), a used car dealer in Wuhan, lamented. In July 2023, Xiao Zhengsan, vice president and secretary general of the China Automobile Dealers Association, said at a used car conference,According to the association's survey data, the proportion of used car dealers that have suffered losses in recent years has reached as high as 92%.With the price cuts this year, this figure may rise further.
Where should used car dealers go?
A car owner spent 130,000 yuan to buy it in 2021BYDIf Qin were placed in today's used car market, it would face direct competition from new cars with the lowest configuration priced at less than 80,000 yuan.
"The price dropped too fast." Wang Meng said that faced with the frequent price cuts of new cars, it is difficult to sell used cars at a good price. Car dealers cannot get low prices, and it is not cost-effective to get high prices. "During the Spring Festival in the first half of the year, everyone's overall expectations were good, but as a result, the stockpiling was completed and the new car prices dropped. New cars lose money, and we lose money too."
January 2023,TeslaChina announces its modelsModel 3andModel YThe price cuts marked the beginning of China's auto price war. This year, the price cut trend has not subsided, but has intensified.According to statistics from the China Passenger Car Association Secretary-General Cui Dongshu, 29 models cut their prices in February this year, 49 models cut their prices in March, and 54 models cut their prices in April. "The number of models that cut their prices from February to April is also an astonishing level compared to history." Cui Dongshu wrote that the scale of car price cuts from January to May this year has exceeded 90% of the full year of 2023, exceeding the total scale of price cuts in 2022.
Although the price war started with the price cut of new energy vehicles, its impact has now spread to the entire Chinese auto market, including many mid- to high-end luxury brands. According to statistics from industry consulting agency Jie Lan Lu, compared with two years ago, based on the official guide price,BMW 3 Series、X3，Mercedes-Benz A-Class, C-level,Audi A3, A4L, Q3, Q5L and other models, the discount rate has exceeded 26%. According to Tencent Auto's "High Beam", since April this year,PorscheAll stores are rightTaycanA Porsche salesperson said the discount could be as high as 40%.BMW、AudiStores have recently begun to withdraw discounts, reduce sales volume and prices to exit the price war, but the impact has not yet been transmitted to used cars.
Rick, a used car dealer who mainly sells Porsche and operates mid-to-high-end luxury brands, said that the price reduction of new cars is large. On the one hand, due to their luxury attributes, mid-to-high-end brands are more non-rigid and more obviously affected by the economic environment; on the other hand, the absolute value of their price reduction is also higher, which brings greater operating difficulties and risks to used car dealers.
"A relatively large second-hand car stall, if it only sells luxury brands, may suffer a lot of losses. This is because the circulation of its vehicles will be slower. Maybe it closed early before, and this year is the year with the most serious internal competition in the automobile industry, and prices have fallen sharply. The longer the stock is stored, the higher the cost of the venue and operation." Ma Ting (pseudonym), a front-end practitioner of a second-hand car information service platform, analyzed.
In June this year, Taocheche CEO Jiang Dong said at the "616 Renewal Day" press conference,Under the price war, there is absolutely no possibility of making money from used cars as long as the inventory period exceeds 120 days. If it exceeds 150 days, the average inventory loss is 8%-16%."This also raises a new proposition for our Chinese used car dealers, which is how do you manage your inventory? How do you face the risk of such a sharp price drop?"
Faster, faster, is the common goal of every used car dealer. Rick told Tencent Auto's "High Beam" that the company requires that the car must be turned over within an average of 30 days, regardless of profit or loss."Now if the inventory time exceeds 40 days, the probability of loss is very, very high."
However, in recent years, the average inventory cycle of used cars has shown an upward trend. According to the China Automobile Dealers Association, the average inventory cycle of used cars in China will be 47 days in 2022.Since February 2023, the average monthly inventory cycle has reached 50 days or more. In June this year, the average inventory cycle of used cars in China reached 56 days.
In July 2023, Tian Tian, deputy secretary-general of the China Automobile Dealers Association, said in a speech at a used car conference that the average inventory time of used car dealers is getting longer and longer, approaching a 60-day inventory cycle. If the price is adjusted every 15 days, then 3-4 price adjustments will be required in 60 days, and the probability of car dealers losing money is very high.
In reality, the actual price adjustment frequency of car dealers is much higher than this number. "How many times do you think new car prices have to be reduced in 60 days? Now used car dealers basically adjust prices once a week, and some even have to adjust them in three to five days, with small profits and quick turnover to achieve scale." Wang Meng explained that, for example, the profit was 5%-7% before, but now it may be reduced to 3%-4%; the sales cycle was one month or one and a half months before, but now it has been shortened to 20 days."You make 3,000 or 4,000 or 2,000 or 3,000 yuan off a 100,000 yuan car and run away because you keep lowering the price of your new car. I can't stand it."
Data from the China Automobile Dealers Association shows that since February this year, the average price of used cars has been on a downward trend, and in June the average price was only 64,400 yuan, continuing to hover at a low level. Its market analysis said that the decline in the average price of used cars was affected by the dual impact of intensified market competition and changes in consumer demand. Although the average price has increased slightly compared with the same period last year, this is mainly due to changes in the market structure rather than a substantial increase in vehicle prices.
Zhou Shou said that now they are purely pursuing the route of small profits. "In the past, if the price did not reach our psychological price, we would pass it and wait for the next customer. Now, as long as there is profit in the car we recover, we will choose to sell it as soon as possible."
Even if the price is lowered, fast turnover is still a big challenge for used car dealers. Rick did some calculations: "You still have to make some preparations when the car comes in. The procedures are very complicated and it takes about three to five days. If you purchase it from other places, it may take another week for logistics. Add some expenses, and the effective sales cycle is basically two to three weeks. If you don't sell it in these two or three weeks, then the risk of loss of the product will be very high."
It is difficult to sell, so used car dealers choose to slow down their collection. In Beijing Huaxiang used car market, the annual rent for a parking space is 38,000 yuan. Everyone has paid the rent, so it is absolutely uneconomical to leave the parking space unused. But Liu Yan said that because there are too few customers and he cannot sell his cars, he has not collected many cars recently.
Ma Ting told Tencent Auto's "High Beam",Second-hand car dealers now generally lack confidence and are more cautious in purchasing cars."For example, before, he thought that this car could earn about 8,000 or 9,000 yuan, and he could just sell it. He would take the initiative to talk about it if he was very interested. Now, he won't do that. He has to estimate how long it will take to sell it. If it doesn't sell in a month, he will haggle over the price again, and the car will die in his hands again."
In addition, the proportion of younger models in second-hand car transactions is also decreasing. According to data from the China Automobile Dealers Association, in June this year, models with a service life of less than three years accounted for 25.75%, a decrease of 1.64% from the same period last year. Wang Meng said that younger cars are more likely to see price cuts, and second-hand car dealers will now take the initiative to reduce the proportion of this part of the inventory.
"In fact, the car owners are the ones who are hurt." Zhou Shou sighed. In order to resist the risk of price cuts, second-hand car dealers will lower the prices when buying cars this year."If the car owner chooses to sell, he will sell. If he doesn't choose to sell, we won't force him to do anything. After all, the market fluctuations are not something we can decide."
In the second-hand car market in Huaxiang, new energy vehicles are almost invisible. In the eyes of car dealers here, new energy second-hand vehicles are a business that they are unwilling to get involved in and few others are involved in.
“The big brands are still the best sellers now.Benz, BMW, Audi, etc., have been like this for years.Mercedes-Benz E300 、Toyota Prado3.5, these are easier to sell and more people buy them.New energy is not something we used car dealers can get involved in."Yang Hua (pseudonym), a second-hand car dealer in Huaxiang who sells mid-range brands, said that on the one hand, the depreciation rate of new energy vehicles is too high, and it may cost 100,000 yuan to drive for half a year, which is usually difficult for car owners to accept; on the other hand, the welfare benefits of many new energy vehicles are only limited to the first owner, such asNIOThe three-electric system provided is under warranty for 10 years with no mileage limit, and free roadside assistance for life. Once the ownership of the vehicle changes, these rights and interests will no longer be valid.
The value retention rate has always been a concern for new energy vehicles. According to Guazi Used Cars' 2023 Used Car Online Auction Data Report,The value retention rates of used new energy vehicles in one, two and three years are 67.9%, 58% and 48.2% respectively; those of used fuel vehicles are 77%, 68% and 58% respectively, which are all about ten percentage points higher than those of new energy vehicles.。
Since the beginning of this year, the value retention rate of new energy vehicles has continued to decline. The "China Automobile Value Retention Rate Research Report in June 2024" jointly released by the China Automobile Dealers Association and Jingzhengu shows that in June this year, the value retention rate of three-year-old plug-in hybrid models was 48.7%, and the value retention rate of pure electric models was 50.3%, which were 6 and 4.1 percentage points lower than the same period last year respectively. The above report said,The value retention rate of plug-in hybrid models is on a downward trend due to low-price competition in the new car market, and the time for industry reshuffle is getting closer.
Valuation is also a challenge.According to a report by Guotai Junan Securities, the cost of power batteries accounts for about 43% of the total cost of new energy vehicles. However, there is still a lack of accurate testing and evaluation methods for battery residual value in the market. Even if a third party issues a test report, it is difficult to be recognized by consumers, and buyers and sellers often have disputes over pricing.
In addition, under the price war, new energy vehicles often have greater uncertainty than fuel vehicles.HiPhiIt was booming half a year ago, but suddenly it closed down," said Ma Ting.
Faced with numerous obstacles, car dealers in Huaxiang have basically adopted a "stay away" attitude towards used new energy vehicles.
But on the Internet, the new energy business of used car dealers is another story. Tencent Auto "High Beam" randomly consulted more than ten used car dealers on the social platform, and all of them said that they had businesses involving new energy vehicles. In Rick's company, new energy used cars account for about 10% of the total inventory. He told Tencent Auto "High Beam" that new energy used cars have already had a certain market. Although he has less layout in this area, there are many peers who specialize in new energy used cars.
"Those who come from 4S stores, are younger and more open to new things tend to be more likely to deal in new energy used cars; older car dealers don't tend to be more likely to deal in new energy used cars."Wang Meng concluded.
According to data from the China Automobile Dealers Association, from January to May this year, China's used new energy vehicle transaction volume reached 420,400 units, a year-on-year increase of 68.5%.
Wang Meng said that although new energy vehicles are more susceptible to price cuts, they also have their own unique advantages: first, there is no need to worry about meter adjustment, second, there is no environmental concern, and it is convenient for nationwide circulation, and third, its rapid depreciation and price cuts also make it cheaper, which is easy to attract some young users with lower budgets. Second-hand car dealers can still make profits by selling at low prices and quickly entering and exiting. In addition, there are not many second-hand car dealers doing new energy business, so the competitive pressure is relatively small:"Among the 800,000 used car dealers in China, 800,000 are good at selling traditional fuel vehicles, and only 80,000 are good at selling new energy vehicles. Although the profit margin may seem narrow, I still have few competitors."
"It's not that I don't want to do new energy. In fact, as long as we are still doing it, we will accept new things." Zhou Shou said that he would buy new energy vehicles at the right price.However, the inventory is always small, mainly due to the shortage of vehicles.
Although the penetration rate of new energy vehicles has exceeded 50%, the source of used cars is determined by the stock rather than the current sales. According to the Ministry of Public Security, by the end of 2023, China's new energy vehicle ownership will reach 20.41 million, accounting for only 6.07% of the total number of vehicles. According to the usual 3-5 year replacement cycle, a large part of them have not yet reached the replacement node. In addition, the low value retention rate also makes new energy vehicle owners have concerns when selling.
"I've bought it for two years and driven it for 20,000 kilometers without any scratches, but it's a 50% drop in value when I sell it. It's too much of a loss. I might as well keep driving it like this," complained a Model Y owner. According to the "China Automobile Retention Rate Report for the First Half of 2024", Tesla Model Y has ranked first in the retention rate of pure electric mid-size SUVs.
Rick told Tencent Auto's "High Beam" that the sales model of new energy used cars is different from that of fuel cars. Fuel cars are more likely to be purchased from individual customers, while new energy cars are more likely to be purchased through manufacturers, 4S stores and other channel relationships. Used car dealers specializing in new energy vehicles will formulate more targeted pricing and business strategies. "Now all car dealers are taking the professional route, otherwise it is difficult to find their own suitable acquisition channels and it is difficult to adapt to the rapidly changing market."
In the used car market, new energy vehicles have initially shown their potential. Jiang Dong said at the aforementioned event in June this year that when Taocheche was doing inventory, the ratio of fuel vehicles to new energy vehicles was roughly maintained at 9:1. However, in the past two or three months, the number of leads for new energy vehicles has increased rapidly, especially in southern regions such as the Yangtze River Delta. For the same car picture, the number of leads for new energy vehicles is three times that of fuel vehicles. At the same time, new energy OEMs are also reducing prices simultaneously.
"So you find yourself facing a very tangled situation. In order to obtain more clues, you have to continuously increase the proportion of new energy vehicle inventory; but at the same time, the risk of price decline of all your new energy vehicles is increasing." Jiang Dong said that this has caused used car companies to be caught in a dilemma when determining the inventory ratio, which is one of the huge challenges currently faced.
But Martin believes thatIn the future, the used car market will still be dominated by new energy vehicles."When new energy vehicles account for 60, 70 or even more percent of sales, most of the cars replaced will be new energy vehicles, and then the only second-hand cars will be new energy vehicles. The short life cycle means that the price of the car will drop a little." He gave an example, a car owner may buy it for more than 100,000 yuan, sell it for 70,000 yuan two years later, and the car dealer will only sell it for about 80,000 yuan after buying it. "But no one buys a car for value preservation, and the market ultimately determines the product."
"(The used car industry) is no longer the same as before," Ma Ting lamented.
At the second-hand car conference in July this year, Luo Lei, assistant to the president of the China Automobile Dealers Association, reviewed the changes that second-hand car dealers have experienced over the past decade:"Ten years ago, 15.9% of car dealers had a gross profit margin of more than 10%. By 2022, only 1% of car dealers had a gross profit margin of more than 10%. This year, the situation is likely to be even worse. Ten years ago, only 1% of used car dealers were at a loss. By 2022, the figure reached 82%. This year, the operating conditions of car dealers are even less optimistic."
In contrast to the significantly reduced profits, a large number of practitioners have poured into the used car market in recent years. According to data from the China Automobile Dealers Association,In the past two years, the number of used car dealers has increased from 560,000 to 799,000, a 40% increase, but market transaction volume has only increased by 4.7%.
The low threshold is the unanimous reason given by all used car dealers for the sharp increase in the number of practitioners.
"You can go and learn for a few months and then open a few stores. You can make money."Ma Ting recalled that ten years ago, it was normal to sell a car package worth more than 10,000 yuan for 30,000 or 40,000 yuan. "It can only be said that they are still dazzled by the past."
Today, used car dealers are facing a completely different market situation. Rick said that if the current car dealers have a little poor management ability, they will suffer serious losses.Several used car dealers told Tencent Auto’s “High Beam” that many of their colleagues have chosen to exit the market recently.
For a long time, China's used car market has been highly dependent on independent used car dealers. 4S stores mostly sell replacement vehicles to car dealers in bulk, and rarely sell them directly to individual consumers. According to the "2021 China Used Car Finance and Ecology Report", independent used car dealers other than 4S stores account for 85% of China's total used car transactions, while 4S store dealers account for only 8%.In the United States, 4S dealers account for 37% of total transactions and are the main distribution channel.In addition, because market information is relatively open and transparent, 31% of used car transactions in the United States are conducted directly between individual sellers and end buyers, while this proportion in the Chinese market is only 7%.
For Chinese 4S dealers, new cars are the business that occupies an absolutely important position. Take the dealer group Zhongsheng Holdings as an example. The financial report shows that in 2023, its new car sales business revenue accounted for 78.2% of the total revenue, while the used car sales revenue accounted for only 7.8% of the total revenue.
"The two strategies are different. Used cars rely more on talent and reward mechanisms, while new cars rely more on resources and channel relationships. Many bosses of 4S store groups are older and pay more attention to resource relationships and are reluctant to invest in operations and talent." Wang Meng said that dealers are currently under pressure from price wars, and it is already difficult for them to survive, so it is even more difficult for them to take care of the used car business."Making second-hand cars is like growing cherries, while making new cars is like growing rice. Now that you can barely afford rice, are you still considering growing cherries?"
However, Wang Meng believes that the pattern of China's used car market is already changing. "In 2019, used car companies with more than 30 employees accounted for less than 1% of the market, but now they account for 5%.As companies grow bigger, there are fewer and fewer mom-and-pop stores, and competition is becoming more and more intense.。”
According to data from the China Automobile Dealers Association, self-employed individuals accounted for 55.4% of China's used car industry in the first half of 2022. These self-employed individuals, typically represented by husband-and-wife shops, usually adopt a brokerage model and sell used cars under their own names to avoid value-added tax.
In July 2022, the Ministry of Commerce and 17 other departments issued the "Notice on Several Measures to Revitalize Automobile Circulation and Expand Automobile Consumption", proposing that if an individual sells three or more used cars that have been held for less than one year within a year, they cannot issue a unified invoice for used car sales and cannot register for transfer of ownership. Xu Xingfeng, director of the Market Operation and Consumption Promotion Department of the Ministry of Commerce, said at a press conference that this measure draws on the experience and practices of mature international automobile markets. Individuals who sell a certain number of used cars within a certain period of time will be identified as used car dealers and can no longer trade in their personal name, and must pay taxes in accordance with the law.
According to Ma Ting's observation, today's used car industry is becoming more concentrated.5% of dealers grab 80% of customers, and the remaining small and medium-sized dealers compete for the remaining 20%. These dealers, who have an absolute advantage, often build their own IP on self-media platforms such as Douyin.
The "2024 China Automobile Distribution Industry Used Car Trading Market Top 100 Analysis Report" shows that in the top 100 markets, 25% of car dealers' transactions are directly sold through new media operations.
"In the past, as long as you opened a stall on the street and customers came in, every store would get a few. But now that Douyin has become popular, the spread of self-media is there, and when customers come, they may have already recognized that IP and don't want to go to other stores." Ma Ting explained that there are many gray areas in the used car industry, so trust is particularly critical. Even if some small dealers have more favorable prices than big IPs, customers may spend more money to buy peace of mind.
In Martin's view,Word of mouth is one of the biggest problems facing the used car industry today.Currently, the industry leaves a bad impression on consumers, and there are widespread problems such as contract fraud, vehicle condition fraud, and invoice fraud. "Under the second-hand car videos, you can see many comments saying don't buy second-hand cars, second-hand car dealers are all scammers." In his opinion, it is necessary to establish a convincing official testing agency and set up recognized inspection standards.
In 2013, the national standard "Technical Specifications for Used Car Appraisal and Evaluation" drafted by the China Automobile Dealers Association was released; the following year, the China Automobile Dealers Association launched the "Xing" used car certification brand, and authorized certification agencies can issue "Xing" certification reports after vehicle inspection and evaluation. However, this standard is only a recommended standard and is not mandatory. Ma Ting believes that its impact is still small at present.
Wang Meng said that in order to maintain fairness in the used car industry, many basic laws and regulations need to be improved. He gave an example, because the mileage of a used car is directly linked to its selling price, some car owners will adjust the mileage meter when selling it to car dealers to increase the price, and it is very difficult for companies to trace it."In order to prevent meter tampering, my identification costs will be high, which will increase operating costs. How can my company grow bigger and stronger?"
In Ma Ting's memories,In the past, when the used car market was the most opaque, it was also when its profits were the highest. But now, gradual clarification has become an inevitable trend in the development of the industry, and the transparency of information has received more attention.In the U.S. market, where used car development is relatively mature, consumers can use the vehicle information report query company CARFAX to obtain reports covering accident record checks, mileage records, recall record checks, exhaust gas checks, related daily maintenance conditions, number of sales and purchases, and ownership history.
In China, information such as vehicle repair and maintenance records is still customer privacy and cannot be publicly obtained, and vehicle condition inquiry platforms are often on the edge of a gray area. In 2021, there were rumors that senior executives of "Dr. Cha", a well-known vehicle condition inquiry service provider in the used car industry, were invited to assist the police in the investigation. Dr. Cha later issued a statement saying that the cause of the incident was that the police "discovered that a former employee of our company was suspected of engaging in illegal data trading activities."
In April this year, the "Action Plan for Promoting the Trade-in of Consumer Goods" issued by the Ministry of Commerce and 14 other departments emphasized the need to promote the open use of non-confidential and non-privacy information in the automotive field, improve the operational efficiency of independent third-party used car information query platforms, support the construction of new energy used car power battery testing and valuation platforms, and guide used car dealers to provide and display vehicle status sheets, clearly indicating the vehicle's basic information, important configurations, prices and other content.
Rick believes that competition in the automotive industry will remain fierce in the next 3-5 years, but this is not a bad thing for the used car industry."Most people in this industry used to make a lot of money without doing anything, but now that new cars are widely discounted, it is also a process of survival of the fittest for these manufacturers. Those with poor management capabilities or in the gray area will gradually be cleared out."Rick said that this may take a long period of time, but in the end, the car dealerships that will remain will be those with stronger management capabilities and more guaranteed product quality.
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