FOR William Zhou, 24, buying a used car is a high-stakes game of trust that requires more insight than instinct.

In search of a vehicle to fit his budget, the cash-strapped recent graduate spent a whole day wandering among Shanghai's biggest used car lots on North Zhongshan Road, struggling to assess the maze of offerings.

He heard every imaginable sales pitch from car brokers, agencies, automart salesmen, authorized dealers and even auctioneers, and he still didn't know whom to believe.

Zhou was right to be cautious. Used car dealers in China have a pretty unsavory reputation for deceit and manipulation, often selling lemons to unsuspecting buyers.

According to a recent survey by Auto Business Review, only 2.6 percent of over 17,000 respondents across China said they consider middlemen as reliable sources when buying used cars. More than half said they put their trust in the advice of friends.

"Maybe not all dealers are as bad as we think, but a car amateur like me who knows little about the business really can't tell the difference," Zhou lamented.

China's automotive boom, which catapulted the nation into the world's largest market a few years back, has created a thriving used-car market in its wake.

Still, the market remains pretty obscure to most Chinese mainland consumers.

Where does the used-car market source its vehicles? How does it advertise for buyers? How are used cars priced? Is the market rife with competition?

Shanghai Daily decided to visit used-car vendors and try to find some answers to those questions.

Broker: the most active and formidable

In a somewhat dilapidated four-story parking structure on North Zhongshan Road, one can always find small groups of men seated in aisles between rows of used cars, playing poker or chatting.

These outwardly idle men waiting for business are actually the most active and formidable force in the used car market. They are independent brokers who reportedly accounted for four of every five used cars sold in Shanghai last year.

"The used car market is highly fragmented in terms of supply and demand, and, therefore, it needs a huge number of matchmakers," said Gong Qizhou, 26, a used car broker and Shanghai native. "Brokers and agencies are most suitable for this job because they are to be found everywhere."

It is easy for brokers to start a business. All they need to do is bring buyers and sellers together, charging a commission for their work. On the other hand, buying cars for resale involves quite an upfront investment and invites the risk of inventory depreciation, Gong explained.

He said he decided to be a part-time broker in 2008, when he concluded that China's new car sales growth was approaching its limits just as the used-car market was getting into the driver's seat.

Self-taught expert

The self-taught car expert had many friends working in the garages to tip him off when they came across clients wanting to put their cars up for sale.

Gong's focus was on family cars, especially mass-market brands like Honda, Volkswagen and Nissan that have high resale value. The first car he sold was a 5-year-old Honda Accord sedan. A civil servant with a modest income bought the car at a 40 percent discount to its original cost.

"He was looking for cost-effective transport, just like so many others," Gong said. "But not everyone can find what they want."

Gong usually posts used car ads on local bulletin boards like Ganji and 58.com. He fielded many calls but struck only one or two deals a month. He found buyers cautious.

"They didn't know how to tell lemons from cherries, let alone their value," Gong said. He noted that some cars on the market, like many sold on North Zhongshan Road, don't live up to the price tags they carry.

There are various tricks to make them look much "younger," he said. The odometer can be rolled back at a cost of less than 1,000 yuan (US$157), and the entire interior can be renovated to almost look like new for 2,000 yuan to 3,000 yuan.

"Some unscrupulous dealers would even give facelifts to wrecked or flooded cars and sell them without telling buyers about their history," Gong said.

"By the time buyers looked under the hood to discover what they had really bought, the sellers would be long gone."

Gong said he and his friends in garages would give cars thorough safety checks before deliveries. Since the China Car Dealership Association has yet to publish a unified checklist for the used car market, dealers all work to their own standards.

But the consensus on pricing is clear: With younger motorists, lower mileage and larger market volume, residual values climb. In general, brokers, who are not subject to value-added taxes, make more competitive offers than those who buy and resell cars, and they always keep each other posted on market price changes.

"That leaves buyers in a disadvantaged position to negotiate, given the fact that they don't have price references at hand like we do," Gong said.

Consumer rights don't exist. Many brokers and agencies just do one-shot deals and won't help if the car malfunctions soon after purchase, Gong said.

Gong said he is honest in telling consumers the condition of the car they are buying before any money changes hands. He also gives them this caution: "Used cars are not as good as new ones."

Supermart: king of the road in selection

Joseph Lee, 39, said hidden risks are the least customers have to worry about when buying at his used car dealership.

Lee founded a used car automart called Carking last year. All the cars are lined up for sale, each with its own fact sheet and sticker price.

"The industry needs a more honest and transparent approach to selling used cars," Lee said. "Otherwise, the market won't develop to its fullest."

China's used car sales rose 12.5 percent to 4.3 million units last year, less than a quarter of new car sales and almost in inverse proportion to the car market structure found in Western countries.

Issue of trust

Lee grew up in the UK, so he has some basis for observing that China's used car market is still in its infancy. Although used car dealers in Western countries are frequently the butt of jokes about their sincerity, the issue of trust - or lack of trust - runs deep in the Chinese psyche toward used cars.

"I once expected carmaker-certified dealerships to make a difference, but none of them developed enough brand influence and business scale to do so," Lee said. "That's why I decided to try it myself."

To start Carking, he co-invested 150 million yuan with his partner Chen Xiao, the former chairman of Gome, China's second-largest electrical appliance retailer. It took the pair of them less than half a year to build their first automart. It opened in Shanghai's Jiading District last November. The six-story building has a capacity for 1,000 cars. Carking sells only accident-free used cars younger than 6 years and with mileages lower than 120,000 kilometers.

Each car undergoes safety check, receives a certification report and has pre-delivery inspection before going on sale. The checks are done by the 80-plus mechanics working for Carking.

"Certification reports by third-party agencies in China are not trustworthy because those agencies cannot be held responsible for problems they fail to spot in cars," Lee said. "Certification makes sense only when the issuer also promises repair and maintenance."

Carking has a 7-day unconditional return policy and offers a three-month, 5,000-kilometer free warranty.

Besides handling few consignments, Carking buys cars from private owners, auctions and brokers.

Lee admitted that Carking charges more for its cars than other vendors, but he said most rivals don't include warranty and after-purchase maintenance.

"Many consumers have accepted the value-added part of our prices," said Lee. "I think people are willing to pay more to be reassured about car safety."

Carking's monthly sales recently surpassed 200 units, a far cry from 10 units when the business first opened. Its monthly inventory level has stabilized at 300 units.

The company has spent considerable money on marketing. Despite its somewhat remote location, the store attracts 100 groups of customers each day, mostly families led by men aged between 25 and 40.

Niche-market models

Lee said there are no particular bestsellers in his business. The biggest bargains are definitely those niche-market models with small mileage. Some of them sell at a 50 percent discount to the original sticker price.

"While China has no specific guidelines for used car pricing, the market in each city creates a certain price range for every car, based on their recent trading," Lee said. He has a 10-member appraisal team keeping tabs on the market.

Carking's sticker prices are non-negotiable, Lee said. That way, everyone - not just seasoned hagglers - get a square deal.

"Frankly speaking, we just want a 5 percent profit margin," Lee said. "The figure that matters most is not how much we can earn from a single car, but how many cars we can sell."

Carking shares the philosophy of its business prototype CarMax in the US, which operates on economies of scale.

A large-sized used car dealer is more likely to form partnerships with banks to provide consumer finance services. Having backing from three local lenders, Carking is one of the few used car dealers accepting installment payments.

Though the company's business model is asset intensive, its healthy cash flow has convinced banks and venture capitalists to help fund its expansion. Carking plans to launch a second supersite in Shanghai's Pudong New Area this year, and other two satellite automarts for Shanghai are in the pipeline.

"Our ultimate goal is to get a 10 percent market share in Shanghai," said Lee. "The market out there is just huge."

Dealership: higher standards, higher charges

Eddie Zhang, a senior used car appraiser at BMW, said he doesn't think the used car automart model can succeed in China. He prefers to bet on carmaker-certified dealerships.

"With such a formidable array of cars for sale, the supersize automart is unlikely to evaluate all of them accurately," said the 26-year-old Shanghai native. "The mechanics there may be able to detect a malfunction, but they cannot possibly know everything about every car, such as how well a certain auto part functions after a certain period of usage."

Used car automarts thrive in Western countries because consumers there are sophisticated enough to navigate through the maze of offerings. But Chinese consumers haven't reached that point yet, he said.

Car appraisal is a very specialized field that is brand specific. That gives carmaker-authorized dealerships a leg up in knowing what they are selling. And their credibility is backed up by the manufacturers, which is reason enough to assuage skeptical buyers, according to Zhang.

The BMW dealership he works for is among eight franchised outlets of BMW used cars in Shanghai. The German carmaker, like many of its foreign peers in China, didn't pay much attention to the used cars market until recent years.

"Dealerships start used car businesses largely to drive new car sales," said Zhang. "Many car owners today are looking for a place to sell their two- or three-year-old cars to get vehicle upgrades."

Many of the cars sold at these sites are almost new, offering buyers the chance to buy cars they covet at prices they can afford.

Zhang said the price gap sometimes enables a buyer to purchase a used car one notch higher than the brand-new one he can afford.

Authorized dealerships usually accept trade-ins of all cars but sell only certified used vehicles, according to the respective standards of manufacturers.

At BMW, eligible cars have to be younger than 5 years, with less than 120,000 kilometers on the odometer. Cars that have been in accidents are excluded in a pre-screening process.

To further inspect and appraise the cars, the dealership runs 100 certification tests covering exterior, interior, mechanical and electrical functions, taking repair history into consideration.

The fierce price war in the premium new car sector this year hasn't dented used car prices at BMW-authorized dealerships, Zhang said. The cost of reconditioning work is rolled into the price of a used car.

All certified BMW used cars can get a free one-year or 20,000-kilometer warranty and 24-hour roadside emergency assistance.

The monthly inventory level hovers between 30 and 40 units at each BMW-authorized dealership in Shanghai.

A BMW used car exhibition was held in Shanghai two months ago, putting more than 200 certified cars on display outside the city's largest stadium.

"We want more consumers to have the opportunity to take a good look at our offerings and compare prices with those of non-authorized dealers," Zhang said.

Brokers are still big competition for dealerships, he admitted.

To win customers, dealers have to stress their used-car certification procedures and after-sales services.

"After all," said Zhang, "the used car business is not just about selling cars."

Auction: letting the open market set the price

For Gu Hao, 33, the best way to improve transparency and honesty in the used-car business is through public auctions.

Gu works as an assistant general manager for the Anji used car platform of the Shanghai Automotive Industry Sales Co, which has the strongest auto auctioneers in China.

"A used car sold through bidding can often reveal a vehicle's true value because the price is determined by the market, not by a single person," he said.

Back in 2005, when Anji dropped the hammer on its first deal, cars put up for bid in Shanghai were mainly taxis. It was not until more recently that the city started to auction off rental cars, government fleet vehicles and wheels traded in at dealerships. Today, most cars sold at Anji's auction come from private owners.

"The Chinese used to think they could buy one car and drive it the rest of their lives," Gu said. "But it turns out they change cars quite often and that creates a supply of used cars." Gu himself has changed his car four times so far.

Used cars for auction are either sold to Anji or put on consignment by their owners. In both cases, an appraisal team at the company is responsible for setting the floor price, according to the car's condition.

"There are no cars that don't sell, only asking prices that are shunned," Gu said.

Information about cars for sale is made public prior to the auction date, and cars are open to on-site inspection hours before the bidding starts.

Potential bidders are required to pay a deposit of between 10,000 yuan and 20,000 yuan for a bid card, and 3 percent commission on the winning price if a deal is cut.

There is an auction every Friday afternoon at Anji's 800-square-meter hall in Shanghai. The company also has a business presence in Beijing and organizes online auctions occasionally.

Last year, Anji auctioned off 3,500 used cars, mainly to dealers.

"Buying a car at auction can save people from paying the markup price of a middleman, but most Chinese don't take the initiative and attend auctions because they lack knowledge about cars and bidding techniques," Gu said.

Even in Western countries, where consumers are more sophisticated, dealers are the majority participants at auctions. Gu said that makes perfect sense because markets there, with millions of used cars on sale each year, simply cannot rely on individual bidders to digest the supply.

Many used cars in China originate in the large metropolises like Shanghai and then go into national circulation through wholesale auctions.

Middle- and high-end cars change hands where buying power is strongest, while cheaper, older models are more likely to end up in smaller and inland cities.

Regional hurdles

There are, however, hurdles to used cars moving between regions and cities. Many jurisdictions have varying emission requirements for private car ownership registration. Less efficient models are getting less welcome as China's raises thresholds on exhaust emissions.

The used car market in general is segmented, Gu said, in terms of not only certain standards but also information exchange.

Without an integrated platform of vehicle insurance and repair records, the whole system of used car trading in China just doesn't lend itself to transparency and fairness.

"The problem of information asymmetry starts not with the dealer, but with the seller, who may or may not tell the whole story about his car in order to get a better price," Gu said.

But that only partly explains why the Chinese cannot get over their distrust of dealers.

"Used car shoppers just don't know which dealer best suits their interests," Gu said. "They cannot find places to get that kind of information and have no choice but to believe word of mouth."