China’s next step: Making a second hand car market

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Chinese consumers have bought several million cars per year for the past six years, but where are those cars going once they reach their lifetime limit? The Wall Street Journal’s Norihko Shirouzu has written up an excellent article on the foundations of the second hand car industry, and how it might morph into something much bigger than it currently is. When talking with an automotive executive last year from a major Chinese automotive company, he was all to eager to tell me about his side business in second hand cars and I will admit to nearly fainting when he told me that 45 million second hand cars were traded in 2010…

From WSJ:

After a decade-long surge in sales that made it the world’s largest new-car market, China appears ready to take its next major step: creating a modern market for used cars.

China’s auto industry is so new that there are few used-car businesses today and little involvement by big dealers. Buyers and sellers now meet at stadium-size, open-air markets, some with luxury-car sections.

That’s about to change with used-car sales likely to reach 4.1 million vehicles this year, up 7% from last year, according to an estimate from Daimler AG’s Mercedes-Benz.In response, auto makers including Daimler, Nissan Motor Co. and Volkswagen AG are racing to build used-car operations that can take trade-ins for new cars and offer dealer guarantees and services on used vehicles. One big Chinese auto retailer says it plans to increase its focus on used cars to help improve profit margins.

The auto companies are pursuing customers like Cui Yunding, a 37-year-old sales manager in the south China industrial hub of Shenzhen. Mr. Cui recently purchased a two-year-old Nissan Livina van, his fourth used car, for 86,000 yuan, or about $13,500, roughly what he might pay for a new, midsize sedan from a Chinese auto maker like BYD Co.”I don’t trust those cars,” he says of domestic brands. “If I bought one of them, I would have to fight a long line for repairs.” Mr. Cui says his next car probably also will be used, perhaps Toyota Motor Corp.’s Crown luxury sedan. “This is the most cost-effective way to drive different cars I would not otherwise be able to afford.”