Auto makers vie for used-car market
By Jin Jing |
January 19, 2010, Tuesday
|
Print Edition
Print Edition
RYAN Shao could never have imagined he would save 10 percent on the purchase of a Mercedes-Benz premier sedan.
The 35-year-old businessman recently traded his 2006 Toyota Camry in at a Mercedes-Benz dealership and bought a Mercedes-Benz S350 long-wheelbase model for 1.2 million yuan (US$175,953).
"I wanted to save some money because of the economic environment," said Shao, who runs an information technology company. "The sales person introduced me to Mercedes-Benz's second-hand car program, and I thought it was a good deal."
China is the fastest-growing new car market in the world, and the used-car business is rapidly developing on its heels. Mercedes-Benz, Volkswagen, Audi, BMW and other car makers, seeking to increase revenues as sales slip in developed markets, have been quick to latch onto the trend.
Mercedes-Benz launched its used-car program, named Star Elite, among its Chinese dealers late last year. The program enables car owners to trade in old models for either a new Mercedes-Benz or a Star Elite second-hand Benz model.
Used Mercedes-Benz premier sedans are required to pass 158 check points before they can be sold under the Star Elite program, which offers buyers a one-year warranty and other benefits such as road assistance.
BMW dealer Shanghai Debao Motor Service Co reported its used-car business increased 45 percent last year. Trade-ins grew 37.5 percent, with nine BMWs sold under that program each month. The dealer offers a warranty good for one year or 20,000 kilometers.
Most of the second-hand BMWs are test drive vehicles or cars driving within five years or 120,000 kilometers.
"The trade-ins really give a boost to new car sales," said a salesperson surnamed Zhang.
In the past, many Chinese people disdained used vehicles because new ones were considered symbols of wealth and success.
"Auto buyers are becoming more open-minded about used cars, and many are finding quality there," said Su Hui, general manager of Asia Olympic Village Automobile Trading Center in Beijing.
"The only reason luxury car makers are keen to exploit the used-car market is to keep their premier brand image."
He said original equipment manufacturers are the best bets in the used car market because reputable dealers have the expertise to maintain cars in top running order. That adds value to a second-hand luxury car, he added.
Since Shanghai Volkswagen launched its second-hand car promotion in 2004 in Beijing, car makers including General Motors Corp, Toyota, Guangzhou Honda and Dongfeng Yueda Kia have built up similar businesses in the fledgling market segment.
Explosive growth in car ownership in China in the last six years has put about 70 million vehicles on the roads. Since car owners typically replace their vehicles after five years, the prospects for a surge in the second-hand market are strong this year.
Boost to sales
Selling used cars is one way for car makers to boost sales as fierce competition shaves profit margins of new cars.
According to a report released by the China Automobile Dealers Association, the used car market in China may hit 3 million units this year, rising to more than 4.8 million vehicles by 2012.
In the United States, three used vehicles are sold for every new car sold. In Japan, the ratio is about 2.5. In Beijing, the biggest used car market in China, the proportion is only 0.66. That suggests a lot of room for growth.
The used car market in China will eventually account for two-thirds of auto sales, up from 23 percent at present, the dealers' association said.
Mercedes-Benz now has 15 Star Elite dealerships nationwide and plans to add up to 15 more this year.
"Market analysis shows Chinese consumers prefer to buy used cars from an original equipment manufacturer-backed dealership because this automatically increases the trust in the model," said Bjoern Hauber, general manager in charge of sales and marketing at Mercedes-Benz (China) Ltd.
"Last year, China's used car market grew 30 percent," he said. "It showed tremendous growth potential, which will help dealers enlarge the business and attract a wider variety of customers."
However, industry analysts said the government needs to better support the market by easing regulatory hurdles for second-hand cars.
The central government is drafting rules for the development of the used-car market in China, which may include tax and other incentives.
In addition to name-brand dealerships, there are also numerous trading marts, auction firms and brokerages involved in used cars. Some are disreputable, selling lemons to people who are anxious to get behind the wheel but can't afford a new car.
One clear trend, said industry officials, is that newer vehicles are being traded in sooner.
"The proportion of cars driven by their original owners for only about 18 months is increasing, meaning that sometimes almost brand-new cars are traded in," said Su. "This is because consumers are bombarded with more choices as new car launches intensify."
Currently, up to 60 percent of used vehicles have been driven for less than five years, and the proportion of cars only about 18 months old has grown to nearly 10 percent.
Su said he expects it will take up to two years before used-car sales start to catch up with new car sales.
"That's when the market will really take off," he said.
The 35-year-old businessman recently traded his 2006 Toyota Camry in at a Mercedes-Benz dealership and bought a Mercedes-Benz S350 long-wheelbase model for 1.2 million yuan (US$175,953).
"I wanted to save some money because of the economic environment," said Shao, who runs an information technology company. "The sales person introduced me to Mercedes-Benz's second-hand car program, and I thought it was a good deal."
China is the fastest-growing new car market in the world, and the used-car business is rapidly developing on its heels. Mercedes-Benz, Volkswagen, Audi, BMW and other car makers, seeking to increase revenues as sales slip in developed markets, have been quick to latch onto the trend.
Mercedes-Benz launched its used-car program, named Star Elite, among its Chinese dealers late last year. The program enables car owners to trade in old models for either a new Mercedes-Benz or a Star Elite second-hand Benz model.
Used Mercedes-Benz premier sedans are required to pass 158 check points before they can be sold under the Star Elite program, which offers buyers a one-year warranty and other benefits such as road assistance.
BMW dealer Shanghai Debao Motor Service Co reported its used-car business increased 45 percent last year. Trade-ins grew 37.5 percent, with nine BMWs sold under that program each month. The dealer offers a warranty good for one year or 20,000 kilometers.
Most of the second-hand BMWs are test drive vehicles or cars driving within five years or 120,000 kilometers.
"The trade-ins really give a boost to new car sales," said a salesperson surnamed Zhang.
In the past, many Chinese people disdained used vehicles because new ones were considered symbols of wealth and success.
"Auto buyers are becoming more open-minded about used cars, and many are finding quality there," said Su Hui, general manager of Asia Olympic Village Automobile Trading Center in Beijing.
"The only reason luxury car makers are keen to exploit the used-car market is to keep their premier brand image."
He said original equipment manufacturers are the best bets in the used car market because reputable dealers have the expertise to maintain cars in top running order. That adds value to a second-hand luxury car, he added.
Since Shanghai Volkswagen launched its second-hand car promotion in 2004 in Beijing, car makers including General Motors Corp, Toyota, Guangzhou Honda and Dongfeng Yueda Kia have built up similar businesses in the fledgling market segment.
Explosive growth in car ownership in China in the last six years has put about 70 million vehicles on the roads. Since car owners typically replace their vehicles after five years, the prospects for a surge in the second-hand market are strong this year.
Boost to sales
Selling used cars is one way for car makers to boost sales as fierce competition shaves profit margins of new cars.
According to a report released by the China Automobile Dealers Association, the used car market in China may hit 3 million units this year, rising to more than 4.8 million vehicles by 2012.
In the United States, three used vehicles are sold for every new car sold. In Japan, the ratio is about 2.5. In Beijing, the biggest used car market in China, the proportion is only 0.66. That suggests a lot of room for growth.
The used car market in China will eventually account for two-thirds of auto sales, up from 23 percent at present, the dealers' association said.
Mercedes-Benz now has 15 Star Elite dealerships nationwide and plans to add up to 15 more this year.
"Market analysis shows Chinese consumers prefer to buy used cars from an original equipment manufacturer-backed dealership because this automatically increases the trust in the model," said Bjoern Hauber, general manager in charge of sales and marketing at Mercedes-Benz (China) Ltd.
"Last year, China's used car market grew 30 percent," he said. "It showed tremendous growth potential, which will help dealers enlarge the business and attract a wider variety of customers."
However, industry analysts said the government needs to better support the market by easing regulatory hurdles for second-hand cars.
The central government is drafting rules for the development of the used-car market in China, which may include tax and other incentives.
In addition to name-brand dealerships, there are also numerous trading marts, auction firms and brokerages involved in used cars. Some are disreputable, selling lemons to people who are anxious to get behind the wheel but can't afford a new car.
One clear trend, said industry officials, is that newer vehicles are being traded in sooner.
"The proportion of cars driven by their original owners for only about 18 months is increasing, meaning that sometimes almost brand-new cars are traded in," said Su. "This is because consumers are bombarded with more choices as new car launches intensify."
Currently, up to 60 percent of used vehicles have been driven for less than five years, and the proportion of cars only about 18 months old has grown to nearly 10 percent.
Su said he expects it will take up to two years before used-car sales start to catch up with new car sales.
"That's when the market will really take off," he said.
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