news

text | wu yuhang, intern at caijing

editor | zhao cheng

with the temperature at 38 or 39 degrees celsius, chongqing's largest second-hand car market was deserted.

recently, we visited several used car markets and stores. in chongqing ba kilometer used car market, there were only two salesmen in a nearly 200-square-meter chain car store. there were no customers looking at cars in the store. one of them was eating melon seeds at the tea table, and the other was lying on the sofa playing with his phone. another car store had a similar scene, with seven or eight salesmen gathered at the front desk, chatting while playing with their phones and eating watermelons leisurely.

chongqing balili used car market, also known as chongqing western international automobile city, ranked second in the 2024 china automobile distribution industry top 100 used car market ranking with a transaction volume of 235,500 vehicles, second only to chengdu hongmeng used car market.

in the market, roadside signs that read "buying cars at high prices" can be seen everywhere, and car dealers take naps under umbrellas or in the shade of trees, or scroll through their phones out of boredom. or they gather in groups of three or four to chat, light a cigarette, and while away the unbearable summer time.

the second-hand car market in chongqing auto expo center, 26 kilometers away, was also not popular. the indoor second-hand car trading venue in the auto expo center has five floors, with nearly 30 second-hand car dealers on each floor. however, within two hours, only a handful of people came to the venue to look at cars.

when a customer walked past the booth, the used car dealer immediately put down his phone, stood up to greet the customer, and enthusiastically asked, "would you like to see a car?" his attitude was extremely positive.

"to be honest, not many people come to see the cars. it's good if ten people come to see the cars a day." a new salesperson at a car dealership under the open-air shed said: "i have just started working for more than ten days, and i haven't opened the shop yet."

however, august is the transition period from the traditional off-season to the peak season for the auto market. although the prices of used cars have stabilized in july, used car dealers are still suffering from the impact of the new car price war. according to the forecast of the circulation association, the days of used car dealers will improve after the peak season in september and october.

used car market in chongqing auto expo center photo by wu yuhang

01  new car prices drop, used car dealers are hit

since the beginning of this year, the price war among automakers has been fierce, and the industry has accelerated its internal competition. regarding the price war, some automakers actively participated, some were tired of fighting, and some directly "withdrew".

according to statistics from the china passenger car association, 136 car models have reduced their prices in the first five months of this year alone, and the scale of price reductions has exceeded 90% for the whole year of 2023, exceeding the total scale of price reductions in 2022.

at the same time, the far-reaching impact of this price war storm is not limited to automobile manufacturers, but has also put many used car dealers into unprecedented challenges and changes.

"there have been no orders for two or three months. there were quite a lot of people selling cars some time ago, but even fewer people have been selling cars in the past two days." a salesperson at a used car dealer said: "the price war will not only reshuffle the new car market, but also the used car market, eliminating some merchants with poor service and high premiums."

data from the automobile circulation association showed that since march this year, the monthly transaction volume of used cars nationwide has continued to decline. in july, the transaction volume and transaction amount finally rebounded.

the second-hand car dealers in chongqing's county towns feel the current situation of the poor second-hand car business this year even more strongly. wang jian, who runs a second-hand car dealership in a county town in northeastern chongqing, told us that business has become bleak since the beginning of this year, and there are fewer people looking at second-hand cars than before. the year before last, more than 30 cars were sold in a month, but now only 7 or 8 cars can be sold in a month.

for used car dealers, on the one hand, the sharp drop in new car prices will make some consumers who originally planned to buy used cars reconsider and turn to the new car market.

on the other hand, a sharp drop in new car prices will also directly affect the price system of the used car market. used car dealers have to adjust their selling prices to attract buyers, which further compresses their profit margins.

often overnight, used car dealers are caught off guard by price cuts on new cars.

we learned that a used car dealership received twoteslaanother used car dealership had a similar "backstab" experience. its boss said that due to the sudden price cut of ideal one, the three cars he had in his hands suffered a combined loss of nearly 200,000 yuan.

in fact, car dealers are well aware of the fluctuation patterns of used car prices. generally speaking, new car prices will drop before and after auto shows, and they will also start to drop around march every year. at these time points, used car prices will also drop accordingly. the end of the year is the traditional peak sales season for used cars, and the market demand for used cars increases, so used car prices will rise.

what the used car dealers did not expect was that this round of new car price war would not only last long, but also intensify. this made them more cautious about buying cars. only by reducing the scale of operation and the number of stocks as much as possible can they reduce capital occupation and reduce costs.

huanyu haoche has experienced the largest inventory reduction in recent years. it is understood that the second-hand car dealership once had nearly 230 cars in stock, but the number began to decline at the beginning of this year. in january and february, there were 180 cars in stock, and in august, the inventory was only about 100. not only huanyu haoche, but other car dealers have also said that they dare not overstock.

vehicles for sale in the showroom. photo by wu yuhang

02 the market stabilized and stopped falling in july

if the price of new cars falls, the price of used cars will have to fall as well.

in fact, the used car market has always had a stable pricing system. generally speaking, each car depreciates by an average of about 20,000 yuan per year, and the price of a used car is converted into the price of a used car by adding specific conditions such as the car condition and mileage. however, the price of used cars is also linked to the new car market. if the price of the new car market is unstable, it will also be directly transmitted to the used car market.

according to the china automobile dealers association, the average transaction price of used cars in june 2024 was 64,400 yuan, down 2,000 yuan from may. in fact, the average transaction price of used cars has continued to decline since march this year, with the fastest decline in april, down 2,800 yuan from march. the first half of the year was also the most difficult period for used car dealers.

the same data is also shown in the "july second-hand car transaction price express" released by tiantianpaiche, an internet car sales platform. the overall average transaction price on the platform showed a downward trend, among which the average transaction price of fuel-powered second-hand cars fell by 1,000 yuan to 53,700 yuan, while the average transaction price of new energy second-hand cars rose by 3,100 yuan.

the decline in transaction prices is, on the one hand, a direct result of the price war on new cars leading to a drop in used car prices. on the other hand, used car dealers have no choice but to lower prices in order to clear their inventory as quickly as possible, which is also the main reason for the losses.

data from the automobile circulation association shows that the average inventory cycle in july was shortened to 54 days, which is 2 days less than 56 days in june, but it has not fundamentally alleviated the inventory pressure faced by car dealers. in 2022, the average inventory cycle of used car dealers was about 37 days.

dealing with inventory is the biggest challenge facing used car dealers in the price war. they generally say that selling a used car depends on luck. sometimes the car can be sold the next day after it is bought on the same day, and sometimes it cannot be sold after three or four months. "you have to find someone who is destined to sell a car," a used car dealer lamented.

however, it is difficult for most vehicles to find a suitable buyer in a short period of time. we found that vehicles that have been parked for more than two or three months are common in most second-hand car dealerships, and some dealers even have cars that were bought back four years ago.

the car has not been sold for four years. photo by wu yuhang

most car dealers have their own standards for inventory management, namely, setting up three important time points: one month, three months, and six months. car dealers generally believe that cars that have been on the shelf for more than three months must be sold as soon as possible. if they have not been sold for more than half a year, there is a high probability that they will lose money.

to this end, some car dealers have formulated strict three-level warning measures. if a vehicle has not been sold for 30 days, a first-level warning will be issued to analyze the reasons for the slow sales and appropriately lower the price; a second-level warning will be issued on the 45th day; if the vehicle has not been sold by the 60th day, a third-level warning will be issued and the dealer will be forced to deal with it by selling it wholesale to peers at a low price.

however, this inventory warning mechanism, which has been in operation for more than ten years, has become somewhat ineffective under the price war. luo yu, the head of huanyu haoche's used car business, told us: "in the past, as long as we sold it at the market price, there would be car dealers who would buy it, but from march to june this year, no one wanted to sell it at a low price."

"used car dealers are not used to making losses. but if they keep waiting, they will only face greater losses." luo yu believes that if used car dealers want to break out of the price war, they need to break the shackles of not wanting to sell cars at a loss.

after all, speeding up turnover is the hard truth in a price war. only by letting funds flow can there be more opportunities to make money. if the speed of capital turnover cannot keep up with the speed of price reduction, losses are inevitable.

"if the price of new cars drops, then used cars will definitely lose money. this is what car dealers have to bear. they have to sell them even if they lose 20,000 or 30,000 yuan. if they don't sell them, they will lose more." a used car dealer said: "buying cars now is like gambling. it is difficult to judge the price trend. if the cars you buy can't be sold at a high price, you can only make a loss to make a profit and sell them off to clear the inventory."

however, after experiencing nearly four months of "cold winter", the used car market recovered in the scorching july.

the china automobile dealers association analyzed that after the fierce price war in the second quarter, the transaction price of the new car market began to stabilize in july, and the scale of price-for-volume will be reduced. this phenomenon will be transmitted to the used car market, and the transaction price of used cars will also stabilize. the average price of used cars in july was 65,100 yuan, a slight increase of 700 yuan from the previous month. at the same time, data showed that the national used car transaction volume in august was about 1.57 million vehicles, basically the same as the same period last year. it is expected that after entering the peak season in september and october, the price of used cars will stop falling to a certain extent.

03  in addition to increasing revenue and cutting costs, used car dealers are looking for other ways out

it is not so easy to make money from used cars anymore. this is a reality that many used car dealers have to face.

wang jian, a car dealer in the county, said that he has been doing used car business since 2017 and has clearly felt that the profit has dropped a lot since last year. in the past, he could make 70,000 to 80,000 yuan in gross profit per month, but now it is only 10,000 to 20,000 yuan.

at the second-hand car conference in july 2024, luo lei, assistant to the president of the china automobile dealers association, reviewed the changes that second-hand cars have experienced in the past decade. he said: "ten years ago, 15.9% of car dealers had a gross profit of more than 10%. by 2022, only 1% of car dealers had a gross profit of more than 10%. this year, the situation is likely to be even worse. ten years ago, only 1% of second-hand car dealers were in the red. by 2022, it reached 82%. this year, the operating conditions of car dealers are even less optimistic."

however, recently, there has been some good news from the policy side. the state council issued the "action plan for promoting large-scale equipment renewal and consumer goods trade-in" (hereinafter referred to as the "action plan"). with the implementation of the new round of automobile "trade-in" policy, it will undoubtedly bring benefits to the used car market. in luo lei's view, the introduction of the "trade-in" policy is expected to further increase used car transactions.

after the old cars are traded in for new ones, they will flow into the used car market according to their condition, which will further expand the source of cars in the used car market. after the source of cars is expanded, what used car dealers need to do is to serve consumers well and dispel their concerns when buying used cars.

in this regard, xu haidong, deputy chief engineer of the china association of automobile manufacturers, said that the action plan actually mentioned two aspects of work. the first is to promote the transaction of used cars, smooth the circulation of used cars, reduce intermediary costs, disclose non-confidential car data, encourage third-party platforms to provide services, and allow the used car industry to develop in a standardized manner. the core is to allow consumers to trade conveniently and safely. for new energy used cars, it is proposed to strengthen the evaluation of their batteries and vehicles, promote the construction of a new energy used car system, promote the healthy development of the new energy used car industry, and relieve the worries of new energy vehicle consumers. the second is to support the development and growth of used car business entities and encourage the development of branded used car companies. "these two aspects are the core foundation for the development of the used car industry. only when these two aspects are developed can the overall development level of the used car industry be improved." xu haidong said.

losses will be made, but gains will be made. luo yu also felt the market's "recovery". he said that if you sell used cars acquired after july, you can make money. "when the price of new cars is stable, there is always an opportunity to make money from used cars."

although since july, many joint venture brands have withdrawn from price wars or reduced promotional discounts, the overall market situation has improved, and the market potential contained in the 330 million vehicle base is unquestionable. however, in the short term, the situation of used car dealers is not optimistic. they are unwilling to sit and wait for death, but are actively looking for a way out.

huanyu haoche is riding on the favorable policy of used car export and is optimistic about the huge market of used car export. at present, the company is actively carrying out used car export business, mainly exporting used new energy vehicles, opening up the central asian and central european markets, and planning to build a store in the eastern european market.

huanyu good car export vehicles photographed by wu yuhang

xiaolang, the owner of used cars, travels around the country to buy cars, and simultaneously shoots videos of the cars and posts them on douyin. he basically updates his videos every day and now has 14,000 followers. under each video of buying a car, there are many comments asking about the condition of the car, which has expanded his customer base.

xinlei automobile has risen to the challenge and targeted the gradually increasing penetration rate of electric vehicles. it is preparing to clear out a batch of older gasoline vehicles and sell them at a low price, making no profit or little profit, freeing up parking spaces to expand its new energy electric vehicle business.

wang jian, a car dealer in a county town, is actively developing a side business. in addition to posting information about second-hand cars on his wechat moments, he also posts a lot of information about recycling luxury bags, gold and luxury goods.

whether it is "increasing revenue" or "cutting costs", used car dealers are trying hard to survive this summer.

however, in the opinion of xiao zhengsan, vice president and secretary general of the china automobile dealers association, used car dealers need to work hard in two aspects to turn challenges into opportunities and disadvantages into advantages. on the one hand, used car companies should speed up the iteration of marketing methods, and used car dealers should continue to accelerate the transformation from brokerage to distribution, accelerate the process of digitalization and refinement, promote branding and professional management reforms; build standardized processes and profit models for used car business, and pay attention to the training of used car skilled talents; on the other hand, various business entities should carefully study and judge the market, especially when the price of new cars continues to fall, and be prudent in buying cars and speed up inventory turnover to avoid operating losses.

(luo yu and wang jian in this article are pseudonyms)

editor: zhao cheng