Remarketing: China’s missed opportunity
North-American consumers bought almost 40 million used cars in 2017 versus 17 million new cars. The ratio of 1 new to 2 second hand cars is common across most regions; countries with lower average income obviously score even higher. In China however, it’s the other way around: 29 million new cars sold versus only 12 million second hand cars.
Perception of pre-owned
There a few reasons to explain the unpopularity of second hand cars, the first being the poor quality of Chinese vehicles until some 10 years ago. This means that the Chinese didn’t really have to worry about remarketing older vehicles: after a couple of years, both book value and market value of a vehicle were zero.
Even buying pre-owned imported or locally produced European vehicles was not an option for most Chinese as dealers of second hand vehicles were unreliable and didn’t share a trustworthy insight in the maintenance and accident history of the car.
In addition, local governments gladly issued regulations that made it difficult to sell pre-owned, for instance by prohibiting sales between provinces. The ultimate goal of these regulations was to promote new vehicle sales, in line with central government’s guidelines.
Finally, the Chinese are not fond of recycling; when a Chinese family moves from one house to the next, they will rarely take their old furniture along. New means new, so everything needs to be replaced. Similarly, a new car brings new beginnings and luck, an old car not really…
A new wind
But this is changing. Vehicles produced in China are of much better quality nowadays and the perception of the Chinese manufacturer, within the country, has improved dramatically. The influence of the global manufacturers has been imperative in this evolution: under their influence, China has learnt how to build reliable cars. Also, the global OEMs have introduced the concept of “certified pre-owned”, which means that the consumer, all of a sudden, had access to the car’s history and received an additional warrantee.
Another reason is a change of mindset amongst the Chinese. The many wealthy Chinese can still afford to buy new vehicles, but the growing middle class is much more subject to economic trends. The noise of the local economy’s slowing growth is motivating many people to look for alternatives to new cars. It seems that China’s time of excessive consumption is coming to a halt.
Obviously, today’s second hand market is still dominated by combustion engine powered vehicles, but at the rate of electrification, the next generation (in 3 to 4 years) of pre-owned will be mostly electric. This means that electrification will quickly reach not only the new-car buyer, but also the second-hand car buyer; Chinese Government has understood that regulated second-hand sales can contribute to its low-carbon objectives and is acting accordingly by facilitating and regulating the pre-owned market.