Click and ride

By Xie Wenting Source:Global Times Published: 2014-4-24 20:03:01

Searching for a used car on one of China's thriving new online markets. Photo: Li Hao/GT



Inside a big shed, used car agent Hou Dongdong was with about 50 other people, trying to bid for used cars at the Xinfadi second-hand car trade market in Fengtai district. The twice-weekly event, organized by used car trading company Rocar, requires a deposit of 10,000 yuan ($1,600) from each participant. Before the open auction, people can search Rocar's official website to examine information about each car, including its history and condition.

At each auction there are around 80 cars on display, mostly mid-to-low-end cars. Potential buyers can take a close look at the car and listen to the sound of engine before making a bid, but no test driving is allowed.

Hou says the auctions at Xinfadi are among the first to use the Internet to help sell used cars. They started in 2010.

These days, many used car dealers follow the pattern set by Rocar, giving details about the vehicles online but selling them at an offline auction.

But this model is coming under pressure from new websites such as Cheyipai, Youxinpai and Souche, which conduct business online. Buyers now no longer have to go to the lot to buy a used car, altering the landscape of the used car market.

People wait at the Huaxiang trading hall. Photo: Li Hao/GT



Virtual car sales rise

In 2013, Cheyipai sold 70,000 cars and Youxinpai sold 100,000 cars through their online auctions. And Souche sold more than 1,000 cars to individuals in less than 6 months through its used online retail system. Most of these sales were in the Beijing market.

In comparison, the offline used-car market in Beijing sold 695,300 cars in 2013, according to CBN Weekly.

Delighted with his company's rapidly expanding market share, Souche Vice President Yao Junhong said, "I feel very happy because I entered into the right market."

Yao, previously the managing vice president of China Auto Rental Ltd, set up Souche at the end of 2012. In 2013, Souche got over $20 million in investment, boosting his confidence.

"The market is still developing. We estimate in 2015, the market will bloom," Yao told Metropolitan. 

At souche.com, potential buyers can describe the kind of car they want and the price they'd like to pay to a staff member. Staff members will then personally select five suitable cars. After the potential buyer picks one, Souche will dispatch someone from a team of 30 people to evaluate the car quality. If the potential buyer wants to see the evaluation in detail, he or she can go to Souche's offline shop in Haidian district and look at the car.

Souche will help the buyer and seller bargain online to make a deal.

Every day, more than 13,000 people visit the Souche site, among whom more than 30 percent are repeat customers. About 400 people make an online inquiry about buying a car each day. Around 70 people come to visit the offline shop, and 8 cars are sold every day, according to Yao, who added that over 90 percent of sales are in Beijing.

"The biggest obstacle for the company is to increase the accuracy of matching up buyers and sellers. We're still trying to improve the data analysis software," said Yao.

Not all online car dealers are as sophisticated as Souche. Websites such as 58.com and che168.com function like traditional classified ads, providing buyers with information about the car for sale including photos, data, the price and the seller's contact information.

Ma Gang, vice president of che168.com, told Metropolitan that  40 percent of their ads come from individuals and the other 60 percent from used car dealers.

Potential buyers look at used cars. Photo: Li Hao/GT



Online auctions

The popular websites Cheyipai and Youxinpai conduct regular car auctions entirely online, but only dealers can participate, unlike Souche, which is marketed to consumers.

This saves buyers a lot of time and effort because they do not need to go to the auction lots to test the cars and bid.

Buyers need to deposit 10,000 yuan to participate in the bidding. They will receive notification over the Internet if cars they are interested are going up for auction.

Co-founder Cai Xu tells Metropolitan that Cheyipai's business model is based on the heavy demand to sell cars in first-tier cities like Beijing and Shanghai, and the heavy demand to buy used cars in third- and fourth-tier cities. "It's hard for people to travel a long way to see the car, so we set up this model," explained Cai.

Cheyipai's business was not very successful at first, with buyers in smaller cities unsure whether they could trust the quality of Cheyipai's online cars. Dealers started coming to Beijing to examine the cars, recalled Cai.

But over time, Cheyipai has won over the trust of buyers, and its business expanded. In 2013, its revenue soared to 50 billion yuan from 10 billion yuan in 2012.

Luxury used cars are displayed at the Huaxiang used car market in Fengtai district. Photo: Li Hao/GT

 

Margins squeezed

Hou, the private used car dealer, told Metropolitan that he is facing pressure from the expansion of the online car market.

 Hou uses these services to buy and sell cars, and finds them useful, but he thinks they have been bad for business overall.

"Internet markets, especially the new ones, have put an enormous dent in my business, which is depressing. For instance, the online open auction of cars, like Youxinpai, makes the prices of cars so transparent for customers that it squeezes the profit that I used to be able to take when price information was more confidential," said Hou.

Hou used to frequently visit the Huaxiang used car market in Fengtai district. During a recent visit, there were about 300 people in the trading hall, looking at cars.

This is a decent number, but much lower than in the days before the online markets took off, Hou said.

"The good old days for us have gone," he sighed.

Plate limits spark boom

The used car market received a huge boost in 2010, when new regulations required people to win a licence plate lottery before they could buy a new car in Beijing. The limit on people buying as many new cars as they want has led to many rich people to trade their cars for new ones instead of collecting them, accelerating the development of the used car market.

Some foreign luxury auto companies like BMW and Audi have set their eyes on China's used car market.

Rupert Stadler, chief executive of Audi, recently told Reuters, "We are ramping up the second-hand sales business. We have 290 dealers who offer certified pre-owned Audis."

However, it is unclear if there will be a big demand for pricey used luxury cars. So far, the market is decidedly mid-range.

For example, on souche.com, cars being sold in Beijing cost on average about 140,000 yuan.

The average price of cars sold in cheyipai.com is 50,000 yuan.

An example of consumers who could afford a luxury car but turn to the used market is Peter Zheng, who works at a bank. He says he is constantly scanning the used car market. "If I purchased, I would like to buy a car just above 100,000 yuan. The best part of a used car is that it is cheaper and practical," he said.

Market outside Beijing

The invasion of online used car websites has posed challenges for Hou, who is now trying to explore the markets outside Beijing.

Competition from websites is just one factor pushing Hou out. Air pollution restrictions make buying a car and driving here more of a hassle.

In an effort to reduce pollution and traffic jams, the Beijing government gives Hou a cash subsidy every time he sells a Beijing car to a buyer outside of the city.

Although small dealers like Hou are pessimistic about selling used cars in Beijing, the new online dealers are bullish.

Souche's Yao optimistically told Metropolitan, "Beijing still has a vast market which will have more used cars sold on the market."



Posted in: Metro Beijing

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