The Chinese automobile market has been significant for some time given the country’s huge population and rapidly expanding middle class. China has been the world’s largest auto market by sales since 2010, with the lead extending since then.
The sales boom for new automobiles has in turn fostered a domestic used car market, which has in fact outpaced growth in sales of new cars since 2012. The trading volume of used cars increased 12.77% year-on-year to 2.82 million in the first half of 2014, with the figure expected to reach around 6 million in 2014 and around 10 million in the next two years, according to data from the China Automobile Dealers Association.
Chinese began buying new cars in huge numbers in 2009, when more than 13.6 million new cars were sold – a 48% increase from the previous year. Five years later, these cars are reaching the end of the average 5-plus year life cycle, so more car owners are planning to trade in their vehicle. Secondhand cars were formerly a hard sell in China, while car owners have to settle for much less, and there being a stigma to used cars. But the secondhand market is becoming increasingly popular as drivers find they can get a decent car at a reasonable price.
However, the used car business is largely dominated by small trading companies operating out of large trading halls or open air markets on city outskirts. The lack of a trusted pricing system, reliable vehicle status certification and full service histories have all inhibited the development of the market.
Internet companies, big and small, have been popping up in response to the growing demand. Local listing service 58.com announced a partnership with a used car evaluation platform in November last year. Classified ads site Ganji.com launched a used car trading platform with an investment of US$100 million just a few weeks later. Alibaba also followed suit to launch Taobao’s secondhand car trading platform in the same month.
The rising market is also attracting large capital injections. Cheyipai, one of the leading players in China, has secured a combined US$75 million in three rounds of funding. The company’s major rival Youxinpai reportedly pocked US$260 million of Series B funding from Warburg Pincus and Tiger Fund last September. Renrenche recently announced US$20 million of funding led by Ceyuan Ventures and Shunwei Ventures, the venture capital fund backed by Xiaomi CEO Lei Jun.
Domestic used car trading platforms usually fall into the following five categories:
B2B sites serve as auction platforms and do not get involved in the transaction process. They commercialize the service by charging used car valuation fees from sellers and transaction-based commissions from buyers. The cars listed on the platform come from various sources like 4S stores. Examples: Youxinpai, Cheyipai.
C2B platforms help car owners sell their cars to dealers under a bidding scheme. The platform will run car valuation tests on cars listed on the platform and send them to dealers for their reference. Examples: Gjesc, Pahaoche.
C2C sites connect car owners and sellers to eliminate the middlemen. Examples: Renrenche, Haoche51.
China’s used vehicle market only makes up a small portion of total car sales volume as compared with that for the U.S. market, highlighting the vast potentials of this industry.
image credit: ShutterStock
Editing by Mike Cormack (@bucketoftongues)