Used vehicle orders to become new engine of automotive sector

In the wake of the novel coronavirus outbreak, the used car market is likely to become a vital force in the continued development of China's auto industry, according to insiders.

In the case of flat growth of new car business, the used car market can add muscle to the whole market, Shen Jinjun, president of China Automobile Dealers Association, said to China Securities Journal last week.

"Accelerating the circulation of second-hand car stock will facilitate auto replacement and trade, and helps boost new car sales as a consequence."

Shen's words come after the Ministry of Finance and State Taxation Administration's decision in early April to reduce value-added tax on used cars from 2 percent to 0.5 percent, valid from May 1, 2020 to Dec 31, 2023.

"To see it (the tax rate reduction) as a simple stimulus is to underestimate its effect," Shen said. The aim is to eventually make structural adjustments to the future development of China's vehicle market by boosting both used car and new car sales.

Judging from the proportion of new car and used car sales, the scale of the second-hand car market in China still has large room for growth.

Statistics from the CADA revealed that, in 2019, China's new car sales were 25.77 million units, down 8.2 percent year-on-year.

In the same period, the accumulated transaction volume of used cars reached 14.92 million, with a year-on-year growth of 7.96 percent. The transaction ratio of used cars to new cars was 0.58 to 1.

The proportion in the automobile market in the United States is a big contrast to that of China.

Last year, sales of new cars in the US was 17 million, and sales of used cars reached 40 million, 2.35 times that of new cars.

"It is the active used car market in the US that is driving the country's new car sales," Shen said.

There are some 270 million cars in the US, and in a market where almost everyone owns a car, the vast majority of consumers buy new cars by selling their used cars.

The number of cars in China has reached 260 million, 10 percent of which have entered the replacement period, according to Shen. Based on the proportion of used car and new car transactions in the US, the used car market in China may reach more than 60 million in the future, which is expected to offer huge incentives for the country's automobile market.

Previously, the tax burden was too heavy for the transaction of used cars, which hindered the development of China's used car market, according to insiders.

Luo Lei, the CADA's deputy secretary-general, said the tax reduction policy on second-hand cars is conducive to cultivating business entities, promoting market regulations and adjusting the consumption structure of automobiles.

At present, China's used car business entities are still generally small, loose and weak, Luo added.

The tax reduction on used cars will accelerate the application of corporate operation in the field of used car transactions, in order to avoid irregularities and reduce business risks, according to the CADA.