Used car market in China all set to become the next big thing

About 39 million used cars were sold in the U.S. last year, for instance, compared to 17 million new ones. In China, the opposite prevailed: 29 million new cars sold, and just 12 million used ones.

By: | Updated: June 14, 2018 5:33 PM
Rows of cars. Photographer:Chris Ratcliffe/ Bloomberg

China's huge bet on new-energy vehicles has understandably gotten the world's attention. But a less flashy phenomenon now underway may be at least as consequential for the environment in the near term: China is finally getting into used cars.A familiar ritual in most countries, buying vehicles secondhand had until recently been all but unknown in China. In most markets, sales of used cars outpace those of new ones by a wide margin, usually two-to-one or more. About 39 million used cars were sold in the U.S. last year, for instance, compared to 17 million new ones. In China, the opposite prevailed: 29 million new cars sold, and just 12 million used ones.

That's thanks to some quirks in China's auto market. Until the late 2000s, poor-quality manufacturing limited the lifespan of Chinese-made cars, while prospective secondhand buyers had few ways to determine a vehicle's ownership and accident history. The industry was also highly fragmented, with a well-earned reputation for sketchiness.

Local governments tended to make things worse. Many prohibited the sale of used vehicles between provinces as a means of propping up manufacturers and dealerships. The central government, for its part, has long looked askance at the used-car trade while supporting sales of new ones.

Yet all this is starting to change. Many Chinese-made cars now match or exceed global quality standards, and thus are lasting longer. The government has begun lifting restrictions on used-car sales between provinces, while consumers are getting over their secondhand hang-ups and recognizing that used cars are a good value.

Since the early 2010s, in fact, sales of used cars have been growing much more quickly than those of new ones. In 2017, the used sector grew by 19.3 percent, compared to 3.2 percent for new cars. Analysts predict that secondhand sales could hit 20 million by 2020, and still be years away from meeting the two-to-one ratio that prevails in the U.S. In other words, China is well on its way to becoming the world's biggest secondhand market.

Businesses have certainly taken notice. Manufacturers such as General Motors Co. have rolled out certified pre-owned vehicle programs, while internet used-car services are proliferating. Last year, Chinese bought 1.3 million used cars via online platforms, which offer such novelties as nationwide price comparisons, financing options, vehicle inspections, and at least some degree of transparency about a car's history.

Investors are justifiably excited. They poured more than $2.5 billion into the sector last year. In June alone, online platforms have raised at least $225 million. Uxin Ltd., one such platform, recently announced that it hopes to raise $500 million in an upcoming initial public offering. Expect other entrepreneurs to follow.

All this is good for consumers — and, more importantly, for the environment. Manufacturing makes up as much as 35 percent of a vehicle's lifetime carbon emissions, meaning that every buyer who selects a used vehicle over a new one is helping to slow the buildup of greenhouse gases. In the short term, at least, that's a big deal: Although China is encouraging consumers to go electric, demand for gasoline-powered cars won't disappear any time soon. For at least the next 20 years, there will be significantly more internal-combustion engines on the road than new-energy vehicles. A thriving used-car industry is by far the most efficient way to reduce their carbon impact.

In time, the combination of government inducements to go electric and a burgeoning secondhand market should create a virtuous cycle, as new-energy cars transition to second and third owners and ease out gas-guzzlers in the process. It's a promising model — and suggests China may finally be on its way to a low-carbon future.

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