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 in the level of used car transactions, the turnover of used cars is gradually increasing. In 2022, the turnover of used cars reached 1059.6 billion yuan, in 2023 it reached 1179.5 billion yuan, an 11% increase. Estimated to increase by 12% in the full year of 2024 to approximately 1.3 trillion yuan, reflecting the continuous expansion of the used car transaction scale.

At the call of China Automobile Dealers Association, used car circulation is improving. Local traffic management departments are taking practical measures to facilitate the public and businesses, promoting the circulation of used cars. Compared to developed countries with advanced markets, the transaction proportion of used cars in China is relatively low, as China's automotive market started relatively late, and used car consumption started even later. Currently, the used car market is in a rapid rise stage with extremely huge development potential. Especially with the development of new energy vehicles, more ordinary consumers in China have the advantage of low-cost car purchase and usage. With the release of the national scrappage policy update in July, car dealer groups' used car business and car scrappage updates are flourishing, showcasing the enormous development potential of China's used car market, making it inevitable to achieve the interim target of replacing old cars with new ones this year.

1. Industry development returning to the fast lane

In recent years, the used car industry has shown rapid development, rising from 6 million units in 2014 to 17.59 million units in 2021. The industry grew by 11 million units in 7 years, showing relatively strong growth. In 2022, the overall volume of used car transactions showed a relatively low state, with a 9% year-on-year decrease. Since 2023, the development of the used car industry has returned to the fast lane, with used car sales reaching 18.41 million units in 2023, a 15% year-on-year increase.

In July 2024, there were 1.61 million used cars, a 2% year-on-year increase, with a turnover of 104.8 billion yuan, a 2% increase; from January to July, there were 10.99 million transactions, a 6% year-on-year increase, with a turnover of 730 billion yuan, a 12% increase. At the same time, due to the continuous improvement in the level of used car transactions, the turnover of used cars is gradually increasing. In 2022, the turnover of used cars reached 1059.6 billion yuan, in 2023 it reached 1179.5 billion yuan, an 11% increase. Estimated to increase by 12% in the full year of 2024 to approximately 1.3 trillion yuan, reflecting the continuous expansion of the used car transaction scale.

2. Structure of used car transactions

The pattern of the used car market shows that the sedan market continues to grow, while the minivan 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 slightly 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 is relatively stable within three years, accounting for 25.1% of the total in July 2024, and 46.7% for the 3-6 year range, which is a significant increase. In other words, used cars under six years old account for 70% of the total, while used cars between 7-10 years old in July 2024 only account for 18.1%, and the proportion of used cars over 10 years old has increased to 10.2%.

Currently, the trading of high-age old vehicles is not particularly frequent. With the continuous improvement of automotive technology, the quality guarantee of high-age products is getting better, and there is great potential for scrapping and renewal of these middle-aged and high-age vehicles in the future.

Due to the relatively short development time of the Chinese automobile market, the age of used car transactions in China is relatively short compared to mature countries. Used cars aged 3-5 years and 1-3 years account for a relatively high proportion in China, while in developed countries like the USA, most of the used cars traded are over 5 years old, especially in France and Japan, where the proportion of used cars over 8 years old is relatively high.

4. Average transaction price trend of used cars

In the past two years, the average transaction price of used cars has been trending towards the middle and high-end, with a significant increase in the proportion of used cars priced above 0.15 million, while the proportion of cars below 0.03 million has decreased, and the 0.03-0.05 million range has gradually increased.

This year, the proportion of cars priced below 0.08 million has increased, especially for used cars around 0.03-0.05 million in July, which have performed well.

5. The age of the new energy used cars

In the third quarter of 2024, the proportion of used new energy vehicles with a service life of less than 2 years nationwide was 35.4%, with obvious early low factors in the first and second quarters, all at a low level compared to the same period last year.

In the third quarter of 2024, the proportion of used vehicles with a service life of 2-4 years was 36.7%, with 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 of vehicles with a service life of 4-6 years accounted for 14.7%, a decrease from the previous period, relatively low compared to last year.

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

Overall, in 2024, the age structure of used new energy vehicles is different, with a significant decrease in the proportion of short service life due to the extended sales time after the popularity of new energy vehicles.

6. The trading prices of used new energy vehicles

The trading prices of used new energy vehicles have increased significantly, with a significant increase in the proportion of transactions for models priced between 0.08-0.15 million recently. With the growth of scrappage and renewal, the sales volume of models priced below 0.03 million has increased recently.

7. The proportion of second-hand vehicle transfer

The proportion of second-hand vehicle transfer fluctuates between 25% and 30%. At present, due to the implementation of the China VI emission standard, the convenience of second-hand vehicle transfer has improved, and the proportion of second-hand vehicle transfer has rebounded to a higher level of about 29%. Beijing and Shanghai are currently the two main areas where second-hand vehicle transactions flow out, while Anhui, Shandong, Jilin, etc. are the main areas where second-hand vehicle transactions flow in. The outflow of second-hand vehicles in Beijing is relatively strong, always occupying the first place, which reflects the relatively strong scale of the outflow of second-hand vehicles in the Beijing market.

8. Second-hand vehicle inventory time

As of now, the inventory of second-hand vehicles is in a slight decline. The inventory pressure in July has relatively improved, especially the proportion of second-hand vehicles with an inventory period of more than 30 days in July 2024 is relatively stable at 36%. The proportion of second-hand vehicle inventory with a period of 15 to 30 days is relatively low at 51%. The proportion of second-hand vehicles with a period of less than 15 days is at 14%. Currently, the operating pressure of second-hand vehicles in 2024 is gradually improving. With the gradual promotion of new car policies, the actual transaction price of new cars has decreased, which has affected the transaction price of second-hand cars and reduced the price difference of second-hand cars, bringing certain pressure to the operation of second-hand cars.

9. Residual value of second-hand vehicles

The three-year residual value of new energy vehicles is generally at a relatively low level, which is completely normal. The monthly variation of new energy vehicles is not significant, but the residual value rate has clearly improved compared to the previous two years, which is likely to be unsustainable. After all, new energy vehicles are durable consumer goods and do not have vehicle purchase taxes, so the residual value effect is expected to be significantly lower than that of gasoline vehicles. Due to intense price competition, the residual value rate of gasoline vehicles has also declined slightly.

The continuous decline in the price of second-hand vehicles has led to the withdrawal of some vehicle dealers, similar to the intense competition in the new car market, and the industry transformation and clearance have become inevitable.

For the price reduction of second-hand vehicles, there has been a clear judgment at the macro level. Scraping old vehicles to stimulate new car sales may replace the previous replacement path.

Editor/Rocky