Luxury dealer set for used-car boom

The head of mainland car dealer Zhongsheng Group expects growth in the market for reliable second-hand autos to outpace new car sales in the coming years.

'Right now we don't even have a item on our income statement for second-hand sales ... but this is going to be a huge and very important factor for us,' said Huang Yi, chairman of the biggest Hong Kong-listed auto dealer by market value and a major mainland dealer for Toyota, Lexus, Nissan and Mercedes-Benz.

'I think in the next few years sales of used cars will grow at more than 20 per cent,' he said.

Huang also said Zhongsheng's same-store sales are 'certain' to rise at least 10 per cent this year, bucking a trend in slowing sales growth across the market by focusing on mid and high-end brands.

Huang said the company has confirmed plans to open its first Jaguar Land Rover dealership, in Shandong province, next year, and approvals are pending for its first Volvo showroom, which would be located in Fujian province.

Zhongsheng plans to increase its number of showrooms from the present 114 to almost 140 by the end of this year and 180 by late 2012.

All Zhongsheng dealerships that have been in business for more than a year are stepping into the second-hand car market, when they begin to build a stock of cars that have been traded for purchases of new cars.

However, most of these are sold on to the lightly regulated second-hand car trading markets prevalent in the mainland. These markets are known for being dodgy and traders are called huangniu, or 'yellow cows', which translates roughly as 'scalpers'.

'Consumers still don't trust second-hand cars because they think the market is dominated by scalpers. There is not a lot of transparency in the sales process so they don't want to risk it,' said Zhongsheng's head of corporate finance, Ge Wenda.

'But if dealerships start selling them then customer confidence will rise,' he said. This is because dealers tend to focus on cars they sold as new and serviced, so they are able to offer a full maintenance history of the vehicle, as well as a warranty.

Yale Zhang, head of Shanghai-based consultancy Automotive Foresight, says reliable statistics on the second-hand car market are hard to find, but he estimates it at some 3-4 million vehicles compared with 18 million new vehicles sold last year.

'In the coming five years we are going to see a boom in used-car sales,' he says. Zhang notes that used car sales account for about a third of revenue for most dealers in the US, while the percentage in the mainland remains negligible.

The second-hand market has lagged, Huang says, because 'some old laws and tax regulations that still haven't been changed'.

Specifically, dealerships who sell second-hand cars directly to consumers must pay about 2 per cent of the selling price as tax. Unloading traded-in cars on a wholesale basis to 'yellow cow' scalpers is not taxed, and those traders typically collect only a few hundred yuan per car in 'handling fees.'

Another expected growth driver of the secondary market is the improving quality of the stock.

'Ten years ago the market was dominated by old Volkswagen Jettas or Santanas that had been driven for several hundred thousand kilometres,' Huang says. 'In the big cities today, you are talking about a used Mercedes or Lexus that is only three to five years old.'