China Automobile Dealers Association: Overview and Form Analysis of Used Car Market [Part 2]

This article will continue to share with you some of the content of the article "The Potential of the Used Car Market to Outperform the Market Has Not Been Released" [Part 2] written by Luo Lei, Deputy Secretary-General of the China Automobile Dealers Association for the "Industry Blue Book". It will help you understand the situation of the used car market in 2019 and the in-depth interpretation of the association's experts.

In last year's article, the author predicted that the growth rate of the used car market in 2019 will be expected to maintain double-digit growth. However, affected by the new car market, it is rare for the used car market to maintain a positive growth of about 8%. From the growth trend of transaction volume in each month of 2019 and the confidence index of used car managers, as shown in the figure below, the used car market began to accelerate in the third quarter, and this momentum is expected to be maintained in the new year. From this, it can be roughly judged that the growth rate of the used car market in 2020 is likely to exceed that of 2019.

Second-hand car manager confidence index in the past two years

Market changes are affected by many factors. When I was writing the 2020 market forecast, the sudden outbreak of the COVID-19 pandemic disrupted everyone's rhythm. The whole country has focused its work on epidemic prevention and control. Except for industries related to epidemic prevention and people's livelihood, which have stepped up production, other industries are basically stagnant, and some companies have gradually recovered. The COVID-19 pandemic has undoubtedly changed the trajectory of the automobile market. Some industry experts describe the automobile market as pressing the pause button. From the current situation, most used car companies have not yet entered normal working conditions in mid-to-late February. According to statistics from the China Automobile Dealers Association, as of February 17, the resumption rate of 4S stores was only 9.33%, the opening rate of the used car trading market was 9.91%, and the resumption rate of used car dealers was 11.14%; on March 2, the resumption rate of 4S stores increased to 36.6%, the opening rate of the used car trading market was 55.55%, the resumption rate of on-site cars was 47%, and the resumption rate of off-site car dealers was 66.5% (see Figure 14). Under the premise of avoiding crowds and preventing the spread of the epidemic, most car dealers attract customers through live broadcasts, short videos, and the Internet, paving the way for restoring normal market order in the next stage. This makes it more difficult to predict the used car market in 2020, but it is certain that the overall trend of the used car market maintaining rapid development will not change.

Reopening of used car companies

my country's car ownership has accumulated to a huge base, laying a solid foundation for the development of the used car market. According to the annual bulletin data released by the National Bureau of Statistics, at the end of 2019, the national car ownership was 254 million (261.5 million civilian cars minus 7.62 million three-wheeled cars and low-speed trucks). This is a large base, with the ownership only less than the United States by more than 20 million, while the used car transaction volume is 25 million less. Of course, affected by many factors, it is difficult for my country's car ownership rate to reach the level of developed countries in a short time, but this just shows that my country's used car market has huge growth potential.

 We have observed that in response to market demand, some companies focusing on vehicle distribution have emerged and have achieved rapid development. Their operating model is to centrally purchase vehicles from leasing companies, financial companies, and travel companies, and then distribute them to many used car dealers with whom they have close cooperation, and obtain economic benefits through maintenance, supply chain finance, and other methods.

 In addition, in response to the problem that a large number of used car sources are scattered in the hands of individual consumers and the high cost of obtaining these scattered sources is difficult to solve, a number of companies have also developed C2B business through e-commerce service models, and their business has also developed rapidly. Of course, traditional B2B e-commerce platforms are also strengthening their existing businesses and becoming integrators of used car sources. The industrial chain of used cars is gradually forming an industrial chain of professional buyers-auction wholesalers-retailers.

3. From the perspective of market operation, the market is accelerating

As mentioned above, the used car market started to gain momentum in September 2019, with transaction volume increasing by more than 7% consecutively. If this trend continues, it is expected to regain vitality in 2020. However, due to the long Spring Festival holiday in January 2020, the effective working hours will be shortened, which will affect the used car transactions. The more serious factor is the sudden outbreak of the epidemic, which has shut down the used car market. In February, the focus was on fighting the epidemic, and most companies did not resume normal work, so the transaction data would be very ugly. Even if the epidemic is under control in March, the order of the used car market will gradually recover. In this sense, the used car transaction volume in the first quarter of 2020 may show a significant negative growth, and it is expected to decline by about 40%. However, after the market recovers, there will be a process of replenishment in the second half of the year, and the overall growth for the whole year should not be too much suspense. If there were no sudden factors of the epidemic, the operation chart of the used car market would have shown the characteristics of acceleration.

In April 2019, the Ministry of Commerce, the Ministry of Public Security and the General Administration of Customs jointly issued the "Notice on Supporting the Development of Used Car Export Business in Regions with Mature Conditions". The first batch of 10 provinces and cities, including Beijing, Tianjin and Shanghai, launched the pilot of used car export business. On July 8, the e-commerce platform Uxin Group sent the first used car export order to Poland, which kicked off the export of used cars. About 40 pilot enterprises across the country have successively organized the source of cars to be sent to countries along the Belt and Road. Although the export volume in 2019 was not large, it was of far-reaching significance.

Friends in the industry may have noticed that every car brand, every e-commerce platform or a used car dealer who wants to build a brand, as well as third-party appraisal and evaluation agencies are promoting how many tests they have. Many agencies use the large number of test items as a selling point. What's even more outrageous is that the most testing and evaluation agency has 1,058 tests, which has become a joke in the industry. To this end, the China Automobile Dealers Association coordinated professors from industry colleges and universities, industry experts, third-party testing agencies, e-commerce platforms, etc. to form a used car appraisal and evaluation standard working group. Based on the national standard "Used Car Appraisal and Evaluation Specifications", they have developed standardized testing and evaluation reports that meet market needs and are commonly used by the industry for use by the entire industry to form the "Mandarin" of the used car market. At the same time, the used car quality inspection promoted by the China Automobile Dealers Association - "Xing" certification is also being popularized throughout the map. The purpose is to make transactions transparent and provide a reassuring environment for consumers to buy and sell used cars.

Although the progress of the VAT reform on used cars is slow, there is hope. As we all know, the VAT legislation is in progress. Used cars have been managed as assets and have not been included in the commodity sequence. When the second part mentioned the establishment of a temporary registration system for used cars, it was also mentioned that the trial has begun in the registration of used car exports, and it is expected to be promoted and implemented in the registration of used car transactions. If the second-hand export registration idea is followed, the used cars entering the circulation link are registered as commodity circulation, and naturally have commodity attributes. The VAT reform issue on used cars will also be included in the tax sequence of ordinary commodities with the progress of VAT legislation. Of course, this requires the joint efforts of the entire industry. In short, the "three mountains" that have plagued the industry for many years are expected to turn around in 2020, and the policy environment of the used car market will be improved.

According to the value retention rate data released by the China Automobile Dealers Association in December 2019, the three-year value retention rate of new energy vehicles is about 35% on average, while the value retention rate of ordinary cars is generally above 60%, and Toyota and Honda even exceed 70%. Then there is how to detect and evaluate new energy vehicles. Since there is no standard to follow, companies engaged in new energy second-hand vehicles can only collect and sell cars blindly. Therefore, the problem of new energy second-hand vehicles has also caused great obstacles to the consumption of new energy vehicles. In order to solve the difficulties in the circulation of new energy second-hand vehicles, the China Automobile Dealers Association organized experts from scientific research institutions, new energy research and development, production, sales, second-hand cars, and upstream and downstream enterprises in the industrial chain. It took more than a year to organize and develop the group standard "Technical Specifications for Identification and Evaluation of Electric Passenger Vehicles" to guide the second-hand car operations of first-line enterprises. The specification has detailed provisions on the quality status detection methods and valuation models of new energy second-hand vehicles from the aspects of body, battery, motor, electronic control, etc., and is expected to be released and implemented in the first half of 2020.

Predicting the market is a very difficult task because the market operation status is the result of the combined effect of various factors. There are many factors that affect the used car market, which can be summarized into the following five factors: the first is macroeconomic factors. The second is the impact of related markets. The third is the policy environment. The fourth is the soft environment for market development. The fifth is the hard environment for market development. The sixth is other factors, such as the sudden outbreak of the new coronavirus pneumonia.

Among the above 6 factors, 3 are negative factors and 3 are positive factors. It is difficult to calculate them with a mathematical model. However, from the perspective of market development, it is highly likely that the used car market will maintain sustained growth in the medium and long term. The 3 negative factors are temporary interferences. Although the epidemic will affect normal transactions for a month or even more, according to the law of market development, there will be a process of replenishment after the epidemic ends.