In Depth: China’s Used-Car Dealers Face a Bumpy Ride as Price Wars Intensify

China's second-hand car market is experiencing rapid growth, largely driven by increased vehicle ownership and evolving consumer behavior. In the first half of the year, 16.26 million vehicles changed hands in China, with used car sales growing by 7% year-on-year to 9.38 million units, according to the China Automobile Dealers Association (CADA) [para. 2]. The gap between used car and new car sales is narrowing, with some experts predicting that by 2025, sales of used cars could match those of new cars [para. 3].

Despite this growth, used-car dealers in China face several challenges. More than 90% of used-car dealers reported losses in the first half of the year, mainly due to fierce competition and continuous price wars in the new car market, which began in 2023 [para. 5]. As new car prices drop, the value of used cars also decreases rapidly, pressuring dealers to sell their inventory quickly to avoid further losses [para. 6].

Some dealers have turned to foreign trade as a temporary solution. China eased restrictions on used-car exports in March, encouraging dealers to buy new cars, get temporary licenses, and then export them as used cars. Although initially profitable, this strategy is not seen as a long-term solution for the industry's challenges [para. 7][para. 9].

The market's dynamics have shifted significantly over the past decade, influenced by various factors including online platforms like Guazi.com and Uxin Ltd. that initially garnered substantial investments. However, most platforms struggled with sustainability, and no dominant player has emerged [para. 11]. Car ownership in China is still relatively new, with the average vehicle age being 6.5 years in 2023. The industry's fragmentation and lack of a developed vehicle financing and leasing market have limited the supply of high-quality used cars [para. 12].

Used-car and new car sales are interdependent. Efficient trading in one sector often boosts the other, and regulatory changes since 2016 have facilitated market growth by removing barriers such as relocation restrictions and taxes [para. 15][para. 18]. Sales figures indicate a narrowing gap between new and used cars, with used-car sales approaching those of new cars [para. 19].

Recent policy changes aim to boost the market further, including a "trade-in" program launched in March that offers subsidies for automobiles, aiming to increase used car sales by 45% by 2027 compared to 2023 levels [para. 21]. However, continual price wars in the new car market are dampening these projections, leading to a significant depreciation in used-car prices, often forcing dealers to sell at a discount [para. 22][para. 23].

The rise of new-energy vehicles (NEVs) adds complexity, as their increasing market share affects the resale value of fuel-powered cars [para. 25]. However, the depreciation of used-car prices has made Chinese used cars more competitive in international markets [para. 27]. In 2023, China exported nearly 300,000 used cars, a dramatic increase from 15,000 in 2021 [para. 29].

China's used-car market remains fragmented, with nine out of 10 used cars sold by individuals [para. 30]. Unlike developed markets, strong operators across the supply chain are lacking, and there are no large-scale trading platforms for second-hand vehicles [para. 33]. The absence of industry standards further complicates the market, with no authoritative system for appraising used cars or accessing their histories [para. 35].

To stabilize the market, experts believe automakers and dealers must play a central role. They suggest that automaker-affiliated finance companies create tailored leasing plans to lower new car ownership costs while ensuring a steady supply of high-quality used cars [para. 38]. Some car rental and ride-hailing companies have already started tapping into the market, selling older vehicles as second-hand to keep their fleets updated [para. 39].

Ultimately, the future success of China's used-car market is tied closely to the stability of its new car market. Industry leaders argue that a reduction in the number of new car manufacturers will help align long-term strategies and stabilize the market [para. 41].