After a foul October, and as November dawned in Nanjing, the sun decided to poke its head out from behind the grey gloom. Under the blue skies, it was a crisp, fresh, bright morning. Not so for Nanjing’s Second Hand Car Market that lies just off Daming Lu.
What was a hive of activity has been reduced to a handful of dealers, each operating out of a ramshackle office in front of which they peddle their wares, more often than not consisting of a Mini Cooper, a Volkswagen Beetle, a Buick Excelle, a couple of Hyundai and the ubiquitous Honda Accord.
Some of the dealers busy themselves washing their cars, painting the tire walls black, opening the bonnet to show off a souped up, polished engine. Today, others are content to sit in the sun. Dealers, it appears, outnumber buyers.
The culprit? Apps. There can be few of us Nanjingers who have not seen the advertisements playing outside office lifts for second hand car apps in which the middle man vanishes before our very eyes. Such C2C sites that connect car owners and sellers directly include Renrenche and Haoche51. Then there is the plethora of other types of platform, from the traditional B2C model that buys used cars and then sells them on to individuals after pocketing their commission, to more innovative C2B examples such as Youxinpai and Cheyipai whereby car owners can sell their car to a dealer under a bidding scheme.
A few years ago, these same salespeople were also sitting around doing largely nothing, albeit for an altogether different reason; Chinese people simply did not want to buy a used car. Until recently, buying a used auto meant making do or settling for less. Then there was the issue of safety; a good proportion of used vehicles for sale in previous years had been in accidents. Used car salesmen in China are no different to elsewhere; the stereotype that they are economical with the truth is, if anything, reinforced by a market that is less than transparent. Full Service History? Yeah, right.
Now, the worm has turned. Second hand cars are all the rage in China, thanks to a change in public perceptions, the relatively high price of new cars (or astronomical in the case of imports) and changes in policy from those up on high in Beijing who see used cars as an effective way of raising consumption among lower income groups.
Most of the cars sitting out in the sun this November morning at the Nanjing Second Hand Car Market are 3-4 years old. Born here, their retirement destination may be elsewhere in Jiangsu or even further afield, thanks to vehicle emission standards that differ from city to city. What was a middle class family’s runaround in Nanjing is shortly to be a taxi in Huai’an.
One upshot from the policy changes that will see many a vehicle more optimistic of their retirement is a scrapping of regulations that prevented cars from being sold across provincial borders, ostensibly to protect local businesses. Nevertheless, more than 300 cities have introduced limitations on used cars sales, while in Beijing, cars may not be sold if failing to meet the National 5 vehicle emission standards (China’s equivalent to the Euro V).
There were a total of 24.6 million car sales in China last year (up 4.68 percent year on year, according to the China Association of Automobile Manufacturers) of which used cars accounted for seven million (up a whopping 17 percent year on year). Such growth is really beginning to shake up the status quo in which China was a mirror image to Western developed economies. Sales of second hand cars in the USA, for example, are 2-2.5 times higher than for new vehicles. In China, the reverse is true, or was true.
Back to those apps. Used car sales through online marketplaces have skyrocketed over the last year, as consumers have been drowned in a sea of advertising that persuades them to e-shop as it is cheaper, faster, easier and more transparent. Last August, the hugely popular online reality show “Running Man” found a new sponsor in online second hand car marketplace Xin.com, a snip at ¥180 million.
In the physical world, dealerships generally look to slap 20-35 percent on the asking price for a vehicle, and call that their profit. Online, commission rates run at an average of 3 percent.
While the aforementioned Renrenche has sold over 200,000 cars since its formation in April 2014, and this year hit a monthly peak of 18,000 in July, the numbers still do not add up, especially when there is all that advertising to pay for.
Then again, they may not have to pay for it, or at least some of it. The market leaders in the online second hand car market are all backed by major Internet companies. Renrenche has both Xiaomi and Tencent among its stakeholders, while Baidu reclines in a Renrenche boardroom seat.
The situation is far from without precedent. In the cases of the last two Internet sensations; taxi hailing and food delivery, the industry enjoyed an initial honeymoon, buoyed by capital investment, followed by consolidation, after investment was no longer sustained, with the remainder falling by the wayside; no less than six online car wash services have hit the wall this year alone.
With the taxi app wars, Didi Chuxing was the only domestic outfit to survive. In the competition for our stomachs’ attention, Ele.me, Meituan Waimai and Baidu Waimai collectively control 80 percent of the food delivery market.
So it will likely be with the online sales of used cars, with Renrenche in the lead to emerge as the final victor. Not only has the startup raised US$260 million in investment funding (in just 18 months), it also has a formidable team as founders; Du Xiyong, with his 12 years’ experience in auto news editing, and three former Baidu IT engineers.
All is not lost for the car dealerships of old, especially with regard to the sale of imported cars. Local drivers may well be unfamiliar with an imported model and will therefore feel a strong need to see and sit in the vehicle in person before committing to a purchase.
China Auto Logistics, a Nasdaq listed firm that buys and sells imported cars, has grown to become China’s largest wholesaler of imported luxury vehicles with a network of 3,000 dealers nationwide. With its belief in the long term growth potential for the industry, the company recently took over a 26,000 sq.m. space in Tianjin to turn it into a massive second hand imported vehicle mall; the fabulously named Car King Tianjin.
Both on and offline, the used car market in China is certainly getting the rattling it deserves, with drivers finally sitting behind the wheels of the reasonably priced decent cars they too deserve. The sooner that message gets through to Nanjing’s Second Hand Car Market, the better.
Thinking of buying a used car in China?
The Nanjinger’s Auto Correspondent says, “Visit the markets, check prices online and ignore the salespeople. Make friends with someone in the police and ask them to check the car’s accident report. Then, and only then, should you make the dealer an offer”.
This article was first published in The Nanjinger Magazine, November 2016 issue. If you would like to read the whole magazine, please follow this link.
