Cui Dongshu, the Secretary-General of the China Passenger Car Association, stated in a post that with the promotion of the national policy of replacing old cars with new ones, the second-hand car market in China is thriving and has tremendous potential. In July 2024, there were 1.61 million second-hand cars, an increase of 2% compared to the same period last year, and the transaction amount was 104.8 billion yuan, an increase of 2% compared to the same period last year. From January to July, there were 10.99 million transactions, an increase of 6% compared to the same period last year, and the transaction amount was 730 billion yuan, an increase of 12%.

At the same time, due to the continuous improvement of the grade of second-hand car transactions, the transaction value of second-hand cars has gradually increased. The transaction value of second-hand cars reached 1,059.6 billion yuan in 2022 and 1,179.5 billion yuan in 2023, an increase of 11%. Based on the 12% increase in the first seven months of 2024, the annual estimate is 1.3 trillion yuan, reflecting the continuous growth of the scale of second-hand car transactions.

Under the call of the China Automobile Dealers Association, the circulation of second-hand cars has improved. The transportation management departments across the country have carried out practical work to facilitate the public and enterprises, and promote the circulation of second-hand cars. However, compared with the markets of advanced developed countries, the proportion of second-hand car transactions in China is relatively low. China's automobile market started relatively late, and second-hand car consumption started even later. At present, the second-hand car market is in a phase of rapid rise, and it has immense potential for future development. Especially with the development of new energy vehicles, more ordinary consumers in China have the advantage of low cost in purchasing and using cars. With the release of the national scrappage and replacement policy in July, the second-hand car business and automobile scrappage and replacement of car dealer groups are flourishing. The development potential of China's second-hand car market is enormous, and the phased goal of old-for-new this year will surely be achieved.

1. Industry development returns to the fast lane

In recent years, the second-hand car market has been developing rapidly, rising from 6 million cars in 2014 to 17.59 million cars in 2021, an increase of 11 million cars in 7 years, showing strong growth. In 2022, the overall volume of second-hand car transactions showed a relatively low state, with a year-on-year decrease of 9%. Since 2023, the development of the second-hand car industry has returned to the fast lane, with second-hand car sales reaching 18.41 million units in 2023, a year-on-year increase of 15%.

In July 2024, there were 1.61 million second-hand cars, an increase of 2% compared to the same period last year, with a transaction value of 104.8 billion yuan, an increase of 2% compared to the same period last year. From January to July, there were 10.99 million transactions, an increase of 6% year-on-year, with a transaction value of 730 billion yuan, an increase of 12%. At the same time, due to the continuous improvement of the grade of second-hand car transactions, the transaction value of second-hand cars has gradually increased. The transaction value of second-hand cars reached 1,059.6 billion yuan in 2022 and 1,179.5 billion yuan in 2023, an increase of 11%. Based on the 12% increase in the first seven months of 2024, the annual estimate is 1.3 trillion yuan, reflecting the continuous growth of the scale of second-hand car transactions.

2. Second-hand car transaction structure

The pattern of the used car market shows that the sedan market continues to grow, while the bus market is relatively shrinking. The overall structure of the used car market is developing towards high-end consumption of SUVs and MPVs, similar to the new car market.

3. Age of used car transactions

The performance of nearly new used car transactions is strong, mainly due to the emergence of new energy vehicles in the used car market. Currently, the transaction structure of used cars within three years is relatively stable, accounting for 25.1% in July 2024. The proportion of 3-6 year old cars reaches 46.7%, showing a significant growth. Both proportions are relatively high, which means that used cars within six years account for 70% of the total, while cars between 7-10 years old account for only 18.1% as of July 2024. Cars older than 10 years old see a large increase, reaching 10.2%.

Currently, the trade of older vehicles with high age is not particularly frequent. With the continuous improvement of automotive technology, the quality assurance of high-age products is getting better and better. In the future, there is great potential for a significant increase in the scrapping and replacement of these medium to high age vehicles.

Due to the short development time of the Chinese car market, the age of the used cars traded is relatively short compared to mature countries. In China, the proportion of used cars traded within 3-5 years and 1-3 years is relatively high. On the other hand, in developed countries such as the USA, most of the used cars traded are 5 years or older, especially those older than 8 years, which account for a higher proportion in France, Japan, and other countries.

4. Trend of average price for used car transactions

In the past two years, the average price of used car transactions has been trending towards the medium to high-end segment. The proportion of used cars priced above 0.15 million has significantly increased, while the proportion of cars priced below 0.03 million has declined. The proportion of cars priced between 0.03 million and 0.05 million has gradually increased.

This year, there has been an increase in the proportion of cars priced below 0.08 million, especially in July, with good development in the range of 0.03 million to 0.05 million used cars.

5. New energy used car age

In the third quarter of 2024, the proportion of new energy used cars nationwide with less than 2 years of use is 35.4%, with significant early-season factors in the first and second quarters, both at a low level compared to the same period last year.

In the third quarter of 2024, the proportion of used cars with 2-4 years of usage is 36.7%, a slight decrease from the previous quarter, slightly higher than the same period last year, but still at a relatively low level.

In the third quarter of 2024, the trading volume for cars with a usage period of 4-6 years accounts for 14.7%, a decrease from the previous quarter, relatively low compared to last year.

In the third quarter of 2024, the proportion of cars over 6 years old has notably increased, especially compared to the same period last year.

Overall, in 2024, the age structure of new energy used cars shows differentiation, with a significant decrease in the proportion of short age due to the extended sales time after the surge in new energy vehicles.

6. New energy used car transaction price

The transaction price of new energy used cars has significantly increased, with a significant increase in the proportion of transactions for models priced between 0.08-0.15 million recently. With the growth in scrappage replacement, there has been an increase in sales volume of models priced below 0.03 million in recent times.

7. The proportion of second-hand car transfers

The proportion of second-hand car transfers fluctuates between 25% and 30%. Currently, due to the implementation of the China VI standard, the convenience of second-hand car transfers has increased, and the proportion of second-hand car transfers has risen to a higher level of about 29%. Among them, Beijing and Shanghai are the main areas where second-hand car trades flow out, while Anhui, Shandong, Jilin, etc. are the main areas where second-hand car trades flow in. The outflow of second-hand cars in Beijing is relatively strong, always ranking first, reflecting the relatively strong scale of the second-hand car outflow market in Beijing.

8. Second-hand car inventory time

Currently, the inventory of second-hand cars is slightly decreasing, and the inventory pressure in July has improved relatively. Especially in July 2024, the inventory ratio of second-hand cars over 30 days remained relatively stable at 36%; the inventory ratio of second-hand cars between 15 and 30 days is relatively low at 51%; and the inventory ratio of second-hand cars within 15 days is at 14%. Currently, the overall running pressure of second-hand cars in 2024 is gradually improving. With the gradual promotion of new car policies, the actual transaction price of new cars has affected the transaction price of second-hand cars, resulting in the narrowing of the price difference of second-hand cars, which has brought certain pressure to the operation of second-hand cars.

9. Second-hand car retention rate

The three-year retention rate of new energy vehicles is generally low, which is completely normal. The monthly changes in new energy vehicles are not significant, but the retention rate has obviously increased compared to the previous two years, which should also be unsustainable. After all, new energy vehicles are durable consumer goods and do not have vehicle purchase taxes, so the retention effect should be significantly lower than that of fuel vehicles. Due to the fierce price competition, the retention rate of fuel vehicles has also slightly decreased.

The continuous decline in second-hand car prices has led to the withdrawal of some car dealers, which is similar to the situation of intense competition in the new car market. Industry transformation and clearance have become inevitable.

There is already a clear judgment at the macro level on the price reduction of second-hand cars, that is, scrapping old cars to stimulate new car sales, which may replace the previous replacement path.

Editor/Rocky