With the gradual improvement of the domestic used car finance related systems in the future, consumers' acceptance of used cars is increasing, and China's used car industry has ushered in a period of high-quality development. However, at present, the domestic second-hand car ecology is facing certain challenges at both the supply and demand ends, the circulation link and the policy supervision.
Existing challenges
The pain points of the industrial chain are scattered and complex
1. Both sides of the supply and demand of used cars
In terms of the supply of used car sources, the current used car sources in mainland China are mainly vehicles sold and disposed of by individual car owners. According to Roland Berger, such supplies account for more than 90% of the overall market source.
In this context, the overall stability of the mainland vehicle supply is poor, the scale is not large and the regional differences are obvious, and the vehicle usage habits of individual car owners are not the same (such as maintenance frequency, maintenance standards, etc.), resulting in uneven quality of the mainland used car sources.
In terms of the demand for used car terminals, information asymmetry and complex transaction processes are the two core pain points faced by used car consumers in mainland China.
First, information asymmetry has brought about a lack of consumer confidence in the used car industry.
Concealment of car conditions, water soaking cars, accident cars, overvaluation, contract fraud, financial opacity and other negative information are often reported in the news, and consumers often become vulnerable groups in the face of mixed second-hand car scalper intermediaries.
Secondly, the complexity of the transaction process brings consumers to the experience of buying and selling used cars, and eventually deterred, giving up the purchase of used cars and switching to new cars.
Roland Berger survey shows that the biggest concern of consumers in the process of second-hand car and second-hand car financial transactions is not the price, but the timeliness and convenience, such as difficulty in invoicing, slow approval, complicated transfer procedures and other issues that seriously affect the consumer's car purchase experience.
2. Second-hand car circulation link
The circulation of used cars in mainland China includes vehicle evaluation and pricing, vehicle preparation, logistics and warehousing, vehicle sales, financial insurance, extended warranty maintenance, value-added services and other links. Each link faces corresponding challenges that need to be solved urgently.
Vehicle evaluation pricing link: At present, vehicle testing in mainland China is mainly based on manual testing, and it is lacking in the professionalism and timeliness of testing. There are various types of third-party testing agencies in the market that provide used car testing services, but the test items and the standards used are different
Not the same.
In terms of vehicle valuation and pricing, the current mainland lacks authoritative and complete industry vehicle transaction data to form fair pricing, and this link is not only the first step for second-hand cars to flow into the market as a commodity, but also the most critical step for consumers to buy second-hand cars, so industry participants are prone to moral hazard, and car dealers collude with testing and evaluation agencies to deceive consumers.
Vehicle preparation link: The culture of the mainland used car market is not as mature as that of Europe and the United States, and the number of scalpers and small traders in the circulation of used cars is large, so the degree of attention to the preparation link after receiving the car is not high, and it is often only a preliminary cleaning and maintenance, that is, it is sold on the shelves.
This will not only affect consumers' overall perception of the condition of used cars, but also lead to additional costs in the subsequent consumer car use.
Logistics and warehousing links: The dispersion of vehicle sources and obvious regional differences have led to the current problems of poor integration of vehicle sources, low resource utilization, and multi-layer middlemen earning price differences in the actual operation process of used car logistics, and used car dealers often encounter many pain points such as uneven logistics services and chaotic price systems when purchasing cars in different places.
Vehicle sales: The first challenge in this link is the establishment of a trust system. In addition, mainland second-hand car dealers face certain liquidity pressure in the sales process, and the capital turnover is limited, which makes it difficult to achieve rapid scale expansion, let alone scale effect.
In terms of operation, small and medium-sized car dealers lack management tools, and the mode of workshop operation is more common, which affects transaction efficiency. At the operational level, although the dealer tax reform policy has been introduced, there are still dealers who carry out second-hand car transactions through private transfer due to factors such as taxation, the existence of legal entities and the inconvenience of transfer.
The actual operation and challenges of the above second-hand car sales links are greatly detrimental to the formation of a data closed loop of transaction prices and transaction information in the second-hand car market in the mainland.
Financial and insurance links: the attributes of second-hand car commodities are not clear, the transaction process is relatively irregular, the transaction price and transaction authenticity are easy to tamper with, coupled with the relative sinking of the second-hand car market, the consumer credit system is relatively unsound, traditional financial institutions are often reluctant to enter the second-hand car retail financial market for risk considerations, and a small number of financial institutions that enter the market often ask for higher interest rates or seek guarantees to offset credit risks.
The second-hand car wholesale financial market, due to the characteristics of the market operator showing a long tail and small scatter, the ability to resist risks is poor, and it is not in line with the traditional financial institutions' business thinking, so the financial penetration rate of used cars in mainland China has long been at a low level compared with European and American countries.
However, in fact, whether it is car dealers or consumers, the demand for used car finance has existed for a long time, and the imbalance between supply and demand has led to chaos in the field of used car finance in the mainland in recent years, with problems such as arbitrary charges, usury, and routine loans emerging in an endless stream.
Extended warranty maintenance link: Unlike the second-hand car market in some European countries, the mainland does not stipulate that second-hand car dealers need to provide quality assurance for the sale of second-hand cars at the level of laws and regulations, so if consumers have purchased used cars, it means that they need to pay an additional price to buy extended warranty products or choose uninsured cars.
In the sales process of extended warranty products, there are also problems such as price opacity and unclear product attributes, and small and medium-sized second-hand car dealers often do not have the ability of large dealers in vehicle maintenance, so the second-hand car transaction has become a hammer transaction.
Used car consumers often receive services through local small car dealers in the maintenance process, which seriously affects the data collection of the used car life cycle and is not conducive to accelerating the transparency and standardization of the industry.
Value-added service links: At present, there is no large-scale and systematic value-added service agency of the used car industry chain in the mainland to provide one-stop service products, such as SaaS (software as a service) platform, professional and authoritative certification, residual value commitment and bottom, operation support, etc.
3. Second-hand car policy supervision
The mainland used car market has the characteristics of small and scattered participants, wide and deep geographical span, rapid market development, and diversified consumer demands, which put forward higher requirements for the policies and supervision of the mainland used car market. At present, there are key pain points in the mainland's second-hand car policies and supervision, such as the dispersion of management objects, the difficulty of implementation, and the obstruction of data interoperability.
Scattered management objects: There are many participants in the second-hand car industry, and the second-hand car dealer group is even more heterogeneous. The closed loop of advice, design, solicitation, implementation, feedback and revision of regulatory policies is difficult to fully reach all parties in the industry.
Difficulty in implementation: In the face of such a vast second-hand car market, especially a large number of transactions are still completed offline, the introduction and implementation of regulatory policies must not only take into account the geographical differences of various provinces and cities, but also consider the feasibility of cities and rural areas at different levels, so it is inevitable that the final policy effect will be biased.
For example, there is a deviation in time and intensity in the cancellation of the relocation policy at the national level and the actual implementation at the regional level, and the restriction on the relocation of China V vehicles in some regions directly affects the abnormality of The National V used car transaction in the region.
Data interoperability encounters obstacles: The mainland used car transaction and vehicle volume life cycle data have not yet been fully opened, making it difficult for the industry to set up relevant standards and establish an authoritative database to guide transactions. Some industry players have doubts about the interconnection and open sharing of data, so data fragmentation and data silos have always existed.
Challenges ahead
New challenges in new energy still need new solutions
In recent years, the rapid increase in the number of new energy vehicles in the mainland will effectively promote the vigorous development of the new energy used car industry, and also bring new challenges to the used car industry chain.
1. The vehicle retention rate is low
At present, the retention rate of the overall new energy used cars in the mainland is at a low level. Taking the 1-year retention rate as an example, public data shows that in 2019, the retention rate of low-end models with a range of less than 300 kilometers in China's pure electric vehicles is generally less than 35%; while the latest data from Roland Berger in 2020 shows that the retention rate of high-end new energy models of 300 kilometers and above is also less than 75%. The average retention rate of the benchmark fuel vehicles is 80% (some vehicles reach 90%), and the retention rate of new energy used cars is significant.
In addition, mainland new energy vehicles show the characteristics of short replacement cycle. According to the data of daily car auctions in the first three quarters of 2020, compared with the average replacement cycle of fuel vehicles of 4 to 5 years, about 60% of the replacement vehicles of new energy vehicles are 2 years and below. In terms of mileage, about 80% of new energy vehicles travel within 80,000 kilometers when they are sold, while the proportion of fuel vehicles is only 49%.
Factors influencing the low retention rate of new energy vehicles
1) Taking a new energy vehicle with a new vehicle mileage of 500 kilometers as an example, it is assumed to be an operating attribute, and the annual mileage is 80,000-100,000 kilometers;
2) Taking the A-class compact pure electric vehicle as an example, the mileage will increase steadily in the future with the improvement of battery energy density and the application of new platforms
Source: Expert interviews, desk studies; Roland Berger
The shorter replacement cycle will import relatively more vehicle sources to the mainland new energy used car market in a short period of time, while consumers' acceptance of new energy models is limited in the short term, and out of concern about the rapid decay of battery life and the acceleration of product upgrading by technological iteration, the consumer willingness to buy new energy used cars is relatively low.
It can be seen that the supply-side base has expanded, while the demand-side demand is relatively sluggish, which will lead to a relatively oversupply situation in the mainland new energy used car market in the short term.
2. A new field facing the second-hand car industry chain after it is broadened
The emergence of new energy used cars will drive the mainland used car industry chain to derive more diversified industrial development and business model innovation, such as:
The exploration of the second-hand battery industry after the separation of new energy vehicles and vehicles includes the pricing of the residual value of second-hand batteries, the trading of second-hand batteries, the detection and repair of the three-electric system, and the cascade utilization of recycled batteries.
The exploration of the second-hand new energy charging pile industry includes the transaction and recycling of private pile charging piles in the process of new energy vehicle replacement; including the pricing of the residual value of second-hand batteries, the trading of second-hand batteries, the detection and repair of tertiary electric systems, and the cascade utilization of recycled batteries.
The exploration of the application of intelligent electric vehicle network data in the second-hand car industry includes the collection and analysis of upstream vehicle condition data, and the effective use of downstream channel transaction/user data.
These trends in the new energy used car industry chain will pose challenges to industry participants and regulatory policymakers.
This article is excerpted from the 2021 China Used Car Finance and Ecology Report