Used cars stall as cities delay lifting limits

Shen Rong has been riding an emotional roller coaster for the past few months. Having felt joy, hope and excitement, he is now filled with disappointment.

Like many in the used-car sector, the deputy secretary-general of the China Automobile Dealers Association believed spring was around the corner in March when the State Council introduced a series of stimulus policies.

The eight-article guideline included a requirement that local governments lift any limits on inflows of secondhand vehicles from other regions by the end of May.

In China, policies can work like magic and usually a boom is soon conjured. But this time, the hat is yet to be replenished with rabbits.

Statistics show 4.77 million used cars were sold in China in the first half, up only 3.59 percent year-on-year. Monthly sales fell from 884,000 units in March to 818,700 units in June.

"As things are turning out, we might have been overoptimistic. The performance has been a far cry from what was expected," Shen says.

When the support policies were released, the association expected 2016 sales to reach at least 11 million units, 1.5 million more than last year. However, Shi says he didn't expect that many cities would postpone the policies, especially removing the ban on selling nonlocal cars.

China has 172 million cars, but the ban has curbed the free flow of used cars, resulting in insufficient supplies, he says. Yet only 133 cities had lifted the ban by Aug 1, less than half of those with restrictive measures, despite the State Council's deadline of May 31.

Industry insiders say local authorities failed to lift the ban because used cars usually have higher emissions and contribute less to a local economy. Cutthroat competition in the new car market has also contributed.

About 24 million new cars were sold in China last year, and a similar number is entering the market this year, so automakers are trying everything to stay competitive. However, they are cutting prices so much that the cost of a used car can seem excessive to potential buyers.

According to Shen, used cars now cost 70 percent less than a new one, but in developed markets such as the United States it is about 50 percent.

Exacerbating the bleak outlook is the fact that the capital market has become less interested. A report by China Securities shows $2 billion was invested in the sector in 2014 and 2015, but Shen says there has been little investment this year.

Websites specializing in used cars advertised heavily last year, but their performance has been poor. Data from the China Automobile Dealers Association show 180,000 used cars were sold via online platforms, accounting for 7 percent of the market.

National Business Daily reported that online auto trader Guazi planned to spend 1 billion yuan ($150 million; 134 million euros) on advertising this year, but it has revised the plan to focus on its core business of sales.

Shen says it could be time to reexamine the situation and cut the sales forecast to 10 million units, slightly more than last year.

"People in the sector expected a lot when the policies were released, but the market did not improve as expected," he says. "I'm afraid the dashed hopes may affect confidence and weaken the sector's vitality, and that is something no one wants to think about."

lifusheng@chinadaily.com.cn