Second-hand car sales are surging in China, putting pressure on auto makers after a year of sputtering growth in the new-vehicle market.
New passenger-car sales rose just 1.9% in the first 11 months of 2017, down sharply from 2016 and below the projected 2.7% growth globally. Some auto makers in China went into reverse: Ford Motor Co., for example, saw its China sales fall 6% this year.
Some of the blame rests with booming second-hand sales, which rose more than 20% last year over 2016 levels, said Xu Haidong of the China Association of Automobile Manufacturers.
Until recently car ownership was a novelty for China's new middle class, but today "cars have been demystified," said Li Jian, chief executive of online auto-trading platform Renrenche. Chinese motorists are still image-conscious, but now they seek out bargains as an affordable way of trading up.
Foreign auto makers acknowledge that China's second-hand market has become too valuable to ignore, and say they are expanding their preowned offerings. A General Motors Co. spokeswoman said all 1,600 of its Buick, Cadillac and Chevrolet dealerships in China now sell used cars, and that its preowned sales rose 30% in 2017.
A Ford spokesman said that 80% of its roughly 800 Chinese dealerships serve as outlets for certified preowned vehicles.
In the U.S., sales of preowned cars outnumber brand-new sales more than two to one. But in China, this situation is reversed: used-car sales are expected to hit 12.5 million this year, the China Automobile Dealers Association forecasts, compared with around 24.9 million new-vehicle sales.
That ratio is shifting as the country's auto market matures, and used sales should overtake new sales by 2020, the association says. Millions of people who entered the market as first-time buyers a few years ago have grown more knowledgeable and want to upgrade affordably, according to Mr. Li. Recent policy changes designed to boost the preowned market also have made it easier to move vehicles between cities.
In the Zhejiang province city of Ningbo, more used cars change hands than anywhere else in China, according to the dealers association. Ningbo is close to Shanghai and Hangzhou, two of China's biggest and wealthiest cities, ensuring an abundant supply of high-end, nearly new vehicles.
Chinese buyers have figured out that "nobody on the street would ever know the car was bought second-hand," so long as they buy a recent model in good condition, said Lu Mengzheng, a showroom manager at the Yichetang used-car center in Ningbo. Yichetang blazed a trail for used premium cars in Ningbo when it opened 12 years ago, but recently rivals have mushroomed as demand heats up, Mr. Lu said.
His showroom featured BMW, Maserati and Mercedes-Benz cars, and included a limited-edition stretch Lincoln Navigator, on sale here for $256,000, but originally worth $830,000, said Mr. Lu.
At another showroom nearby, Xu Danhong and her husband were eyeing a sporty Audi RS3 that was three years old and cost $45,500. The couple already owned a brand-new Jaguar XJ, but Ms. Xu -- a 25-year-old bank employee -- wanted a smaller, second car and felt that buying preowned made financial sense. "It's a better deal," said Ms. Xu. "Cars are no longer a luxury. It's just a means of transport."
Lots like Mr. Lu's still account for 80% of used-car sales in China, but as the market expands some big-name investors are moving in. Tencent Holdings Ltd. and ride-hailing firm Didi Chuxing both back Renrenche, while Sequoia Capital has invested in rival platform Guazi, and Alibaba operates a second-hand car portal called Xianyu.
An advertising blitz has helped these websites expand their market share from about 5% to 15%, according to Piston Intelligence, an automotive analysis company based in Guangzhou, leaving auto makers offering certified used cars with as little as 5% of the pie.
Auto makers need to respond and "put more focus on used-car sales," said Qian Xu, China director of consultancy AlixPartners, not least because buyers of second-hand premium cars often come back later to purchase brand-new models.
Some car buyers in Ningbo said they would hesitate before buying a car online, but increasing numbers of Chinese people are doing so.
He Yong, a salesman from Chongqing, has bought preowned cars from both Guazi and Renrenche, and said he preferred buying online to the experience of being "hustled" by used-car salesmen. "There's no need to spend lots of money on something you'll change in two or three years," said Mr. He.
--Zhang Chunying in Shanghai and
in Beijing contributed to this article.
(END) Dow Jones Newswires
January 07, 2018 05:44 ET (10:44 GMT)