Raising China’s Second Hand Car: Insiders Discuss Growing Pre-Owned Industry

1013_coverstory_introFor more than a decade, China’s new car market has swelled, generating the development of recreational drivers’ clubs all over the country, as new car owners enjoy their rides and front stage their status. Second only to the U.S., the total number of highways has more than doubled across the country.

It seems the Chinese love for automobiles is mobilizing the balance between old lives and new. Rising incomes and a blossoming car culture have become the mechanisms for landing all four wheels of the country’s auto-sales industry solidly in lead as the world’s largest passenger car marketplace.

 Now three years into a growth spurt in the used car trend, dealerships have grown and matured, the inventories have become full and most of the world’s makers can be found.

As car ownership expands, and as early passenger car owners upgrade to up-market brands and foreign makes, a new market is being created, nourished and commercialized. Just last year in 2012, 4.8 million used cars were sold in China, compared with 15.5 million new cars. Those sales are expected to increase dramatically to 10 million over the next three years, said Shen Rong, deputy secretary general of the China Automobile Dealers Association.

With this abundance of cars on the road, and an almost never ending potential for new drivers, it is no real surprise that registering a car to be legally driven on streets in some cities can cost more, sometimes three to four times more, than the car itself. This is due to the limits set on new registrations in major metropolises like Beijing and Shanghai.

In the middle, back facing camera, Liu Tianxi negotiates a buying price at Antong Used Cars. His business cards emblazoned with the grand title of golden consultant, the offer was to buy the car for a little over RMB 200,000 from Mr. Chen (on the left).

In the middle, back facing camera, Liu Tianxi negotiates a buying price at Antong Used Cars. His business cards emblazoned with the grand title of golden consultant, the offer was to buy the car for a little over RMB 200,000 from Mr. Chen (on the left).

Record breaking traffic jams during holidays in those cities are checked from the brink of complete disruption by the regulations, but in the second tier cities no such mandates have been brought, yet. 

Chen Huibang, a salesman at the used car dealership, Dongwu Group, said, “Dongguan might start to limit the number of license plates in one or two years because there are already over one million registered cars in Dongguan.”

Now three years into a growth spurt in the used car trend, dealerships have grown and matured, the inventories have become full and most of the world’s makers can be found. Buying a car is a basically simple process. Do the research. Kick the tires. Find the best plan for finance. Do the paperwork. The variable which can never be predicted, however, is the infamous used car salesman.

Good reputation.We have a good reputation. Did we tell you about our good reputation? “Not everyone that buys a car needs a test drive. It’s safe to buy used cars in our store. We have a good reputation,” said Mr. Yi of Sunda Used Cars.

Skeptical? When asked for any sort of association certifying this reputation he said, “You can ask the customers, they say we are good.” So we asked for a customer to speak with. Guess his response. “What are you doing? Why do you need to know that much? Some people, they just come here then buy it. This is the private information, we can not offer it.”

But still, Dongguan is a city with some issues in public transit making car ownership a highly considerable option for commuting in the city. While changes are on the horizon, a used car is a great way for non-permanent residents to get mobile and now could be a good time to do so.

Buyer’s Peril

Fewer than ten licenses have been released for used car dealerships in Dongguan, leaving most unlicensed. According to Lu Zixiong, an advanced mechanic certified by the Dongguan Labor Bureau, none of the licensed dealerships offer warrantees and they have a tendency to hide any problems with the vehicles.

“Only 4S stores give out warrantees, so they will be much more expensive. The unlicensed dealers will have much cheaper used cars, but they also lie,” he said. It is not much of an endorsement, but he does leave some room for hope. “If they are honest, then you can buy one a lot cheaper than the 4S.”

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In the Chang Jiu Mazda 4S Shop three mechanics pose for a photo to show their skills at work.

Sales, spare parts, service and survey make up the four S’s in the name of China’s authorized car dealerships. Accredited by foreign and domestic carmakers, the all-in-one sales centers cropped up in the early 2000s to set new standards after a decade of giant unruly markets with sometimes hundreds of independent sellers hawking used cars at the buyer’s peril.

“I can’t recommend any. Don’t dare to. What if someone goes in and gets deceived?” said Lu. He wouldn’t recommend any above the others, for smart reason, but he did share some wisdom for Dongguan’s used car buyers to make the decision on their own.
“[The window price] can come down by 10 to 20 percent.

But in 4S stores, there is less room to come down because they set the price more honestly,” he said. “And they won’t negotiate much because they have the edge. They have the parts, the mechanics and equipment. They have everything convenient, so even if the car comes back for repair, it doesn’t cost them much.”

If your budget is decided by quality over frugality, it is the 4S stores that keep track of maintenance records and mileage counts.

If your budget is decided by quality over frugality, it is the 4S stores that keep track of maintenance records and mileage counts. “I still suggest them to buy in the 4S stores. Foreigners can’t even speak Chinese, of course they will be cheated by dealers,” he said. To find a mechanic to check the car pre-sale, he says try going to an auto repair shop. Pick someone familiar and trustworthy he suggests. It will run between RMB 600 to 800 for the basic naked eye checklist and over 1,000 with any disassembly.

There is a third choice for finding that cherry red curve hugger or light pink fun mobile when the need may arise. No matter the choice of style, if the car owner does not make his or her payments the hot wheels will be repossessed and sent to auction. They are not regular events, but paying attention to the local papers like Dongguan Daily and Nanfang Daily will turn them up. From what can be gathered they are irregular events for selling mostly outmoded government or corporate fleet vehicles.

While the auctions are open to public buyers, don’t show up without serious interest. They require a deposit of RMB 20,000 to assure that no funny business goes on during the sell-off.

At an auction, the adventurous part where you never know if the next vehicle on the block is going to be the car of your dreams or just another in the Geely line of monotonous grey vans, a lot of what transpires is up to chance. China tends to run on a bargain based system of transaction, so there is no real use for an equivalent to the Kelley Blue Book, a list of market value for cars in the U.S., but there are some loose standards for China’s used car market and the vehicle’s diminishing values.

“It’s hard to say. Normally, the first year around 20 percent, then it loses less every year,” said salesman Yi. There was no consensus between Yi and Lu, our mechanic friend, but it was pretty close. According to Lu, each of the first three years the cars lose about 15 percent of their value and 10 percent every year after that. But they completely agreed that “none of the Chinese brands hold their value. Once these cars are used, they aren’t worth a thing,” Lusaid.

Seller’s Weakness

There are other fluctuations in local markets as well. The basic tenements of economics keep Dongguan dealerships a little cheaper than less developed cities like Huizhou, and brings its prices higher than in Guangzhou and Shenzhen where there is both more supply and more demand.

But salesman Yi is certainly ready to admit to leaving a little leg room in the asking price.

When it comes to negotiating in the small glass office with a hot cup of water and a cooling stream of conditioned air, it took a little prodding of our sources to give up some negotiating tricks. Not really because they didn’t want to share, more so it was a matter of dismissing the mechanically disinclined as hapless fools.

This plaque, located inside the passenger side door frame,  gives manufacturer information.

This plaque, located inside the passenger side door frame, gives manufacturer information.

But salesman Yi is certainly ready to admit to leaving a little leg room in the asking price. “The process is very complicated. It includes everything—registration and changing the name on the title. The price is negotiable,” he said.

If you are looking for a foreign name brand, check first inside the passenger side door panel for a plaque that will tell you if the car is an import or if it was manufactured in China. A difference in price.

Lu has a simpler way of explaining the process. “Oh, it’s just like buying vegetables; you can say ‘the next stall is cheaper.’ Why is your price so expensive?” he said. He advises that buyers know the price and capacity of the make’s latest models.

“For example, the latest model is RMB 100,000. It has a skylight, automatic transmission and blah, blah, blah. You can negotiate like this. You should make it clear in your mind that how the latest models are priced, then you will have your own price in mind.”

Basically be careful and tenacious. Chinese take care of their cars as a matter of pride, but what is under the hood may need more than a nice wipe down and scented car oil. Don’t judge a car by its shine says Lu. “There is a lot of information released by dealerships. The basic information and price can be seen online, but a lot of them are not real. They make their cars look very good but in reality they are not.”