As 2024 begins, the price war in China’s new car market shows no signs of abating. Starting January 1, seven car manufacturers, including Tesla, have announced price reductions or limited-time cash incentives for their models.
Industry experts believe the 2024 price war will continue, leading to an ongoing elimination round among car manufacturers. This intense competition in the new car market has also affected the used car market, with overall prices dropping and squeezing the profits of used car dealers.
Decline in Used Car Market Activity
A recent visit by a reporter from Daily Economic News to the Shanghai Used Car Trading Center revealed a sluggish used car market, with prices impacted by the new car price war. Dealers are employing various strategies to attract customers and boost sales. Many are seen holding “buying cars” signs by the roadside, while others actively approach potential customers in the parking lot, offering competitive prices. Inside the trading center, foot traffic is low, and sales personnel are using platforms like Douyin and Xiaohongshu to live stream and attract buyers.
Depreciation and Dealer Losses
Despite the overall cold market, luxury car brands like Mercedes-Benz, BMW, Audi, and Porsche still attract some interest. However, a used car dealer mentioned that significant new car price cuts have affected the resale value of even traditionally high-value brands like Lexus and Toyota.
Data shows that the overall retention rate of used cars declined in 2023 due to the price war, with mid-to-large SUVs and MPVs experiencing notable drops. In December 2023, the retention rate for mid-to-large SUVs was 70.1%, down 5 percentage points year-on-year, while MPVs saw a 4.8 percentage point decline to 64%.
Although the transaction volume of used cars has grown, with a 29.18% year-on-year increase in November 2023, the market’s profitability remains low. The used car manager index for December 2023 stood at 44.1%, slightly up but still below the threshold indicating market health. Data from Guazi, a major used car platform, shows a 6.5% drop in average transaction prices in 2023.
Dealers report that profits are thin, with some having to sell cars at a loss due to rapid new car price cuts, which can make used cars less attractive and more difficult to sell.
Extended Inventory Turnover
The average inventory turnover period for used cars has increased, reflecting market sluggishness and impacting dealer profitability. From 2022 to late 2023, the average turnover period grew from 37 to 61 days. The frequent price adjustments in the new car market exacerbate this issue, with dealers facing significant challenges in maintaining profitability.
Electric Vehicles as a New Growth Point
Despite the challenges, there is potential in the used electric vehicle (EV) segment. While the new car price war has mainly involved EVs, their impact on the used market has been limited due to low transaction volumes and a general reluctance among EV owners to sell.
However, some used EV models, like the 2020 NIO ES8, have seen minor price reductions, resulting in quicker inventory turnover. The penetration rate of used EVs has been rising, reaching 5.2% by November 2023, up from 3.8% at the beginning of the year. Guazi’s data indicates a 122.3% year-on-year increase in used EV transactions, with popular models including BYD Tang, Qin PLUS, and Song PLUS.
Industry experts predict that the penetration rate of used EVs will continue to rise in 2024. The current market environment, characterized by frequent new car price cuts, presents opportunities for consumers to find bargains in the used car market.
Overall, while the price war in the new car market poses significant challenges for used car dealers, it also drives market evolution and presents opportunities for consumers and dealers who can adapt quickly. The used EV market, in particular, offers a promising growth avenue amid these changes.
