China sees growing market for used cars as well image

As car enthusiasts converge on the annual Guangzhou auto show, almost all have a new car on their mind. But explosive growth that transformed China into the world’s largest auto market is also giving life to a new industry here: used cars.

Chinese started buying new cars in huge numbers about four years ago, about the average length of time analysts say drivers will stick with a vehicle before trading it in for a fresh model.

The secondhand market is already taking off, with sales growth last year outpacing that for new vehicles. By volume it is still dwarfed by new cars, which outsold used vehicles three to one. In countries such as the U.S., that ratio is reversed, highlighting the secondhand market’s vast potential to make car ownership affordable for millions more Chinese.

The challenge in China is to develop a modern market for secondhand autos. The business is dominated by thousands of small trading companies that operate out of big trading halls or open air markets on city outskirts. Vehicles are sold tax-free and ownership can be transferred in a day, but quality and fair pricing can be uncertain. By some estimates, four in five used car transactions take place at these markets.

For foreign automakers, “the used car business in China is very different to anything that you would recognize in the Western world,” said Marin Burela, president of Changan Ford, the U.S. company’s China joint venture.

Global automakers have been slow to add used car sales at dealerships, but are now racing to expand into the business, which will diversify their revenue and help build brand loyalty.

Last year in China, used car sales rose 11% to 4.8 million vehicles, while new car sales rose 7% to 15.5 million. The industry expects used car sales of 6 million this year, about 10 million in 2016 and 20 million by 2020, putting it on par with new vehicle sales.