In a fiercely competitive Chinese car market, the continuous price reductions of new cars are squeezing the prices of second-hand cars, leading to thin profit margins for second-hand car dealers and operational challenges for dealerships.
According to a report by “Huaxia Times” on April 18, Mr. Liu, a car dealer operating in the Huaxiang second-hand car market in Beijing, revealed that he acquired a 2024 model electric car (new energy vehicle) at the end of last year, believing that the brand’s resale value was good. However, in January of this year, the manufacturer announced a price reduction of twenty thousand yuan, causing his once profitable car to turn into a loss-making asset. The car has been sitting in the shop for two months, with its price slashed three times, yet there have been few prospective buyers.
Both electric vehicles and second-hand gasoline cars are facing sluggish sales. Some dealers primarily selling gasoline SUVs have noted that certain joint venture brand models that used to sell within approximately 20 days are now taking 40 days or more to move off the lot. Some dealers lamented that even selling cars at a loss doesn’t guarantee sales, as customers tend to wait in anticipation of further price reductions for newly released models.
With cars difficult to sell, actual profit margins for second-hand car operators are shrinking. Many frontline dealers state that this trend stems from the continuous price wars in the new car market permeating to the second-hand car market, with consumers increasingly adopting a wait-and-see attitude.
Automotive industry analyst Lin Shucheng explained to the media that the pressure on second-hand car operations is due to an imbalance in supply and demand in the new car market, which has led to across-the-board price drops. As new car prices continue to decline, the benchmark for pricing second-hand cars is inevitably affected.
Regarding the future of the second-hand car market, Lin Shucheng believes that how the price war in the new car market unfolds, when consumer confidence can recover, and the uncertainties in the external economy will all significantly impact the circulation of second-hand cars.
Despite the continuous price reductions on new cars in China, the first quarter production and sales figures are declining. According to data released by the China Association of Automobile Manufacturers on April 10, China produced 7.039 million vehicles in the first quarter, a 6.9% decrease compared to the same period last year; car sales reached 7.048 million, marking a 5.6% year-on-year decline.
Data released by the China Automobile Dealers Association’s Automotive Market Research Committee on April 9 revealed that retail sales of passenger cars in the first quarter reached 4.226 million units, a 17.4% drop from the same period last year, representing a decrease of 890,000 units.
An article by “The Wall Street Journal” on January 9 previously stated that the Chinese car market is experiencing oversupply, with future demand for electric vehicles significantly lower than the current production capacity. To maintain competitiveness, Chinese car companies have resorted to price reductions, leading to intense price wars among domestic brands and prompting companies to seek opportunities in overseas markets.
Stephen Dyer, Managing Director of consulting firm AlixPartners, told Bloomberg that as long as Chinese car companies have profit margins to spare, there is room to continue the price war.