SoftBank-backed Guazi pledges profits in Q4 as China pushes used car sales

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China auto sales used car softbank
An offline storefront selling used cars through Guazi. (Image credit: Chehaoduo)

SoftBank-backed Chinese online used car retailer Guazi expects to turn its first quarterly profit in the fourth quarter, its chief executive said Monday, as overall used car sales in China struggle to eke out single-digit growth amid a broader auto market slump.

Why it matters: China has continued to push used car sales as part of a way to get the country’s overall domestic car sales back on track.

  • The central government in May began allowing used-car exports from 10 cities and provinces. Used car sales in China posted 4.6% year-on-year growth to 11.85 million units during the first ten months of this year, according to figures from China Automobile Dealers Association.

Details: Chehaoduo Group, best known for its used car trading platform Guazi, made a profit in November and expects to be profitable in the fourth quarter of this year, its CEO Mark Yang said on Monday in Beijing to Chinese media.

  • Chehaoduo said it is stepping up efforts to ensure the quality of used cars on its platform by more than doubling the cost of repair and reconditioning to RMB 3,000 per unit on average with no additional cost to customers.
  • The online car retailer is well funded with about RMB 5 billion (around $715 million ) in cash on its books, Yang said, adding that user acquisition costs has been reduced to about RMB 2,000 per unit, or “lower than those of many automakers.”
  • The Beijing-based company had adopted an aggressive sales strategy, opening more than 600 offline stores across the country within two years for its new car business, Maodu.
  • It announced a fresh round of funding from Softbank’s Vision Fund to the tune of $1.5 billion earlier this year, which brought its total funding to $3.4 billion from investors including Tencent, private equity firm IDG, and venture capital firm Sequoia China.

‘Silver October’ offers little respite for China’s declining auto sales

Context: Chinese media reported Chehaoduo has started reorganizing the company with layoffs and store closures in 12 domestic cities starting in September.

  • The company refuted the statement, telling TechNode that it runs more than 1,000 stores across the country, though Chinese media reports say some store sizes had been reduced.
  • Bloomberg in June reported that the online used car marketplace was in talks with banks for a loan of more than $400 million, but a company spokeswoman declined to comment on this matter.