Road ahead looks clear for China’s used car sales to accelerate

PUBLISHED : Friday, 16 June, 2017, 7:00am
UPDATED : Friday, 16 June, 2017, 7:00am

The trading of used vehicles in China, the world’s largest auto market, is expected to gather momentum as investors on Thursday alone refilled a US$500 million war chest for the country’s second-hand car sales sites to expand their market.

Guazi.com, China’s largest used car trading site by sales volume, announced on Thursday that it has secured a new round of financing worth US$400 million, as it plans to roll out its service to more users across the country.

“We have expanded to more than 200 cities in China, of which many are third-tier and fourth-tier cities. Our target is to have monthly sales of more than 80,000 used cars within the year 2017,” said Yang Haoyong, chief executive officer of Beijing-based Guazi at a press event.

Based on the ratio in the United States, China’s second-hand car market should see 60 million units changing hands each year
Yang Haoyong, CEO, Guazi

The two-year-old start-up, which allows car owners to directly sell their used vehicles to buyers online, sold about 41,000 units in December 2016.

Sequoia Capital China led the latest round of funding, while existing investors including Matrix Partners China and BlueRun Ventures, and new investors like H Capital and New Trend Equity, also pledged capital. It comes nine months after Guazi’s previous financing round, which raised US$250 million.

Also on Thursday, Guazi’s smaller rival Mychebao announced it had landed new funding of 500 million yuan (US$ 73.58 million).

The fundraising of both companies is the latest sign that investors are betting big on the future of the used car market in China, especially after several positive signals from the Chinese authorities.

As consumer behaviour and demands evolve, the car trading market will be as big a market as real estate trading in China
Chen Xiaohong, founder, H Capital

The government has since last year introduced measures to facilitate the trading of used cars. In May 2016, it removed restrictions on used-car registration in a clear indication it is banking on a more active second-hand car market. The aim was to encourage existing owners to sell their vehicles and buy new ones, especially in the country’s mega cities, such as Beijing and Shanghai, where car ownership is restricted because of traffic congestion and air pollution.

“As consumer behaviour and demands evolve, the car trading market will be as big a market as real estate trading in China,” said Chen Xiaohong, founder of H Capital.

Transactions in China’s second-hand housing market topped 5 trillion yuan in 2016 while used car sales were still way below 1 trillion yuan.

China has seen the trading volume of used cars grow from 6.82 million units in 2011 to 10.39 million units in 2016, according to the China Automobile Dealers Association. Despite steady growth, insiders believe the used car market is still in its infancy and there is still a lot of untapped potential.

“For every sale of a new car in the US, there are 2.5 used cars being sold. Based on the ratio in the United States, China’s second-hand car market should see 60 million units changing hands each year,” said Yang.

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