Why China's used car industry has a shiny new appeal
- Sales taxes are extremely high on foreign imported cars
- Ads for used car dealers are more common in tier 1 cities
- Bitauto is working with dealerships and auction houses
By Neill Flynn
There has always been a stigma about buying second hand goods in China, such as cars or houses, because it’s seen as a sign that you can’t afford the brand new equivalent. Seemingly, showing people that you’re wealthy is more important than actually being wealthy, so much so that there are always several Ferraris and Bentleys parked outside my apartment on an evening, driven by 18-year-olds whose parents just want another way to show that they have money.
The negative stigma isn’t the only reason why second hand car sales have traditionally been low. Moving away from the tier one cities, the quality of the roads is generally poor, which means that once a car has driven 50,000 miles, the damage to the chassis is too great to sell on. Tier 1 and Tier 2 tend not to have this problem, and hence there is a developing market for second hand cars.
Over the past year, it’s become more and more common to see advertisements for used car dealers here in Shanghai, as it becomes more socially acceptable. Obviously, the potential size of the market is huge, given that China is the world’s largest automobile market.
Bitauto is a provider of internet content and marketing services for China’s auto industry. Baidu announced in June that it had signed an exclusive deal with Bitauto to provide auto related content on Mobile Baidu’s open data Aladdin platform.
However, PC-based content will be provided exclusively by rival Autohome, which has already seen Bitauto’s PC traffic drop by 10%. It remains to be seen how much of a problem this will be to Bitauto, because the Autohome deal was signed at the same time as the Bitauto deal, so we have yet to see the effect over a full quarter.
However, most people will likely look at cars on their PCs as opposed to their mobile phones, since buying a car isn’t as impulsive a purchase as a new shirt, so the overall shift of traffic may be detrimental.
This is an efficient business model, because it ensures that inventory is sold quickly, and depreciation expense is minimal. After the car is sold, Lentuo will take care of delivery and aftersales service. Likewise, the Yongda deal is similar, and will be based in Shanghai, as well as neighbouring provinces Jiangsu and Zhejiang, collectively known as Jiang-Zhe-Hu, and regarded as the wealthiest region of China.
-- Edited by Adam Courtenay
Neil Flynn is head equity analyst at Chinese Investors