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Used vehicles in China remain a challenging market to play
Yang Jian | 2018/6/29

SHANGHAI -- Used-car sales have outpaced new-vehicle deliveries in China for years. A slew of online used-vehicle trading companies routinely bombard TV viewers and drivers with ads and giant LED screens affixed to office buildings. 

China¡¯s used-car market continues to boom but remains fragmented and the landscape is getting increasingly challenging. 

Compared with Western countries, China¡¯s car market is relatively young -- average Chinese families couldn¡¯t afford a car until the beginning of this century. 

Car rentals and leasing are still largely underdeveloped in the country. 

For these two reasons, every used-car dealer in China faces two major obstacles to growth.

One is the lack of unified standards on assessing residual values of used cars. 

The other is the difficulty in sourcing bulk supply because used vehicles largely remain in the hands of individual owners. Used-car dealers have struggled to expand operations beyond their local market area. 

To get a glimpse of the hurdles, consider what Uxin, a leading used-vehicle e-commerce platform in China, disclosed ahead of its listing Thursday on the Nasdaq. 

Uxin, in its prospectus, says it has found a solution to some of the bigger challenges.

Rather than establishing brick-and-mortar stores, Uxin created an online marketplace where used-car dealers can post inventory. 

Uxin then sends recommendations to prospective used-car buyers mainly through digital channels such as mobile phone apps. 

After a used vehicle is sold, Uxin charges the seller a service fee. It also offers financing to buyers. 

Used-car sales enabled by Uxin¡¯s online platform have grown rapidly since 2016, according to its prospectus. 

In the first quarter, 634,317 used vehicles were sold via the platform, an increase of 68 percent from a year earlier. The company¡¯s revenue nearly doubled to 649 million yuan ($98 million) during the period. 

But the growth has come at a price. 

To attract used-car dealers and buyers amid fierce competition -- there are about 10 similar used-car online trading platforms in China -- Uxin¡¯s operating costs, especially marketing outlays, have skyrocketed. As a result, financial losses have snowballed. 

The company recorded a loss in 2017 of 2.74 billion yuan, up from 1.39 billion yuan in 2016. In the first quarter, it lost another 839 million yuan. 

Like Uxin, other online used-car trading platforms remain unprofitable. 

In 2017, used-vehicle sales in China advanced 19 percent to 12.4 million. Despite the strong increase, volume was less than half of new-vehicle sales, which approached 28.9 million last year.

Judging by history in mature markets such as Europe and the United States, used-vehicle sales will eventually surpass new-vehicle deliveries in China. 

That means the Chinese used-vehicle market still has tremendous potential. 

Yet, as the market remains underdeveloped, it will be an arduous journey, both online or offline, for whoever wants to make big money from it. 

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