Used car market slams into top gear

Industry experts say second hand auto sector really taking off after removal of trading barriers

China's used car market ratcheted up record volumes in trade last year and is poised to expand further in 2018, according to industry experts.

More than 12.4 million second hand vehicles were traded in the world's biggest auto market in 2017, an annual growth rate of 19.3 percent, statistics from the China Automobile Dealers Association showed. Another historical high was also hit in monthly trading volumes last year, with December seeing 1.23 million used cars change hands, up 13.8 percent compared with December 2016.

"The second-hand vehicle market has lurched from the edge to the center of the stage," said CADA Secretary-General Xiao Zhengsan, earlier this month in Beijing.

"In the past two years the State Council, central government bodies, and local governments have attached great importance, as never before, to second-hand car trade," he added.

In March 2017, three ministries began a survey of provincial governments about progress in removing bans on trading in non-local used cars, while the State Council indicated it was ready to direct an inspection team to regions where trading was slow.

The used vehicle trade across administrative borders reached its decade top, and the market was much more active last year when comparing with that in 2016, according to Luo Lei, deputy secretary-general of the association.

Another stimulant to second hand car trade was the removal in China by 135 local authorities of barriers that prevented used cars from one province being sold in another.

"This is the market response to abolition of the bans in many cities, especially those around the major sources of the used cars," Luo said.

The conurbations of Beijing and Tianjin are among the top sources of second hand stock, and the majority of used cars are moved to the adjacent regions, including Shandong province and Inner Mongolia autonomous region.

Luo said one eye catching example of the explosion in the sector's growth was Zaozhuang, a third-tier city in Shandong province. Statistics showed that more than 939,000 used vehicles were registered there last year, a 78.7 percent surge from the year before.

The eastern province, which experienced slow-lane trading in second hand cars in previous years, only removed its ban on non-local second-hand vehicles from June 2017. Industry insiders said the province dragged its feet on implementing new market reforms, especially the measure removing the ban on selling non-local used cars, which resulted in sluggish flow of stock and insufficient supplies.

The end of May 2016 was the deadline, imposed by an eight-article guideline issued by the State Council to local governments, to abolish any limits on inflows of second-hand vehicles from other regions.

Three regions were excluded, to help them attain air pollution control targets. The Beijing-Tianjin-Hebei region, Yangtze River Delta, and Pearl River Delta are also applying higher gasoline and emission standards.

"It is expected that 90 percent of Chinese cities will open their markets to non-local used vehicles, since inspection teams will continue to oversee the actions of local governments," said Xiao.

"The Chinese market is home to about 210 million vehicles in use. With such a volume base, there's huge potential in the used vehicle trade." The association has found that the average price of the traded used vehicles climbed last year to 65,300 yuan ($10,400), and 43.5 percent of the vehicles in circulation were made between three to six years ago, while 24.7 percent are less than 3 years old.

"Last year the market is signaled an upgrade in used-vehicle consumption," Luo said.

The used vehicle market may continue its fast-track expansion to 15 million units this year for an annual growth rate of 15-20 percent, according to the association's prediction.

Just over seven years after China became the world's biggest new automobile market in 2010, industry experts believe the time is ripe for the majority of car owners to replace their vehicles. They also expect the trend towards buying better cars will help accelerate the trade in Chinese used vehicles.

Yang Yongfeng, vice-president of Yixin Group which is specialized in the car trade and financial services, said he believed the development of car financing had also helped boost the sale of second hand cars.

Industry insiders say that the roaring trade in second hand cars is in response to higher build quality in locally made vehicles, which now last much longer. In mature auto markets such as the US, used car sales are typically between 2 and 2.5 times new car sales, but in China it is a nowhere no that level, indicating massive growth potential.

"Chinese customers who buy used cars are mainly short of cash, so plentiful financial products will help their purchases," he said.

"Besides, the abundant money flowing into the market will also help sellers finance their used car stocks."