Beijing has stepped in to monitor the trading of used cars as mainland China’s automotive sector, saddled with overcapacity, is under pressure to improve profitability amid an escalating price war.
On Tuesday afternoon, the Ministry of Commerce gathered industry groups, major carmakers and trading platforms for second-hand cars to discuss issues surrounding the sale of “used vehicles with zero mileage”, according to Reuters.
The ministry was seeking to stabilise car prices in the world’s largest automotive and electric vehicle (EV) market, according to two car dealers, where vicious competition has ensnared around 100 manufacturers. The ministry did not respond to a request for comment on Tuesday.
Typically, cars that have never been driven are bought by second-hand dealers from manufacturers at very low prices before they are sold to consumers as pre-owned vehicles.
“To summarise, carmakers sell [practically] new cars through dealers of used vehicles at much lower prices,” said Tian Maowei, a sales manager at Yiyou Auto Service in Shanghai. “The sales [model] helps individual companies reduce their inventory, but it does no good to the market [when] lower car prices have made it difficult for most carmakers to break even.”
According to dealers, the second-hand cars that have never been driven are offered at prices more than 30 per cent lower than vehicles that are sold as new.
It is not clear if the Ministry of Commerce would continue to allow carmakers and dealers to use the second-hand sales model in question. The dealers said the sales model might not be defined by the ministry as bending the law.
Last week, Wei Jianjun, chairman of Great Wall Motor, the mainland’s largest maker of sport-utility vehicles, said in an interview with news portal Sina Finance that the sale of used cars with zero mileage was the latest battlefront in a brutal price war.
He said at least 3,000 to 4,000 vendors on Chinese used car platforms were selling these cars.
Reuters said BYD, the world’s largest EV assembler, and state-owned Dongfeng Motor would send officials to attend the Ministry of Commerce’s meeting. Neither company would comment on the issue.
In April, the mainland’s automotive market saw a record 16.8 per cent average discount for petrol cars and EVs, up from 16.3 per cent a month earlier, JPMorgan said in a research report earlier this month. The average discount in 2024 was 8.3 per cent, according to data from the China Passenger Car Association.
On Friday, BYD said that until the end of June it would offer discounts of 10 to more than 30 per cent on 22 of its battery-powered and plug-in hybrid models. And on Monday, Galaxy, an EV subsidiary of Geely Auto – the mainland’s second-largest carmaker – began offering discounts of more than 10 per cent to lure new buyers.
Other domestic rivals were expected to follow suit in an effort to retain market share.
The profit margins of most Chinese carmakers narrowed to about 10 per cent in 2024 from around 20 per cent four years earlier, according to Phate Zhang, founder of Shanghai-based data provider CnEVPost.
Of the country’s 50-odd EV manufacturers, only three are known to be profitable: BYD; Li Auto, which like Tesla assembles smart EVs targeting middle-income consumers; and Seres, builder of the Aito-brand intelligent vehicles.
Only half of the nation’s EV production capacity, or 20 million units, was put to use in 2024, according to Goldman Sachs.
