The Risks of ‘Used-Car-Go-Round’: China’s Second-Hand Car Market Flooded with Near-New Vehicles

According to Car News China, the seemingly contradictory terms “used cars” and “new cars” are merging to form the concept of “pre-owned zero-mileage vehicles,” which has become a hot topic in China’s automotive industry.

This term describes vehicles that are registered and documented as new but immediately enter the used car market without ever being driven on the road. These cars often have only a few hundred kilometers, or even zero kilometers, on the odometer and are sold at significantly lower prices than new cars.

Pre-owned Cars with Zero Mileage

Recently, Wei Jianjun, Chairman of Great Wall Motor, expressed concerns about this trend. He pointed out the significant price drop of certain models and questioned how such price reductions could be sustainable while maintaining product quality. He also raised doubts about the impact of this practice on the development of Chinese automotive brands in foreign markets.

The leader of the Great Wall Motors group emphasized that these vehicles are registered as new cars and then re-enter the used car market. An anonymous expert in China’s automotive industry suggested that this model is unlikely to disappear anytime soon.

Car News China attributed the core of this situation to the intense competition in China’s automotive market. Dealers engage in this practice for two main reasons: to proactively receive refunds from manufacturers or to fulfill sales targets.

Automotive manufacturers often provide incentives to dealers to register new cars, even if they are immediately resold as used cars. This support also helps manufacturers achieve sales targets and manage inventory, especially for less popular models.

An industry insider revealed that some Chinese car manufacturers are promoting this strategy to address liquidity and employee salary issues. For example, the J Car joint venture in China recently successfully cleared a stock of 3,000 new cars that had been in storage for two years. Two-thirds of these were sold domestically, and the rest were exported to Central Asian and Middle Eastern markets.

According to Car News China, this strategy allows them to circumvent Euro emission standards, which only apply to new cars, as used cars are not bound by these regulations.

A Double-Edged Strategy

While the “pre-owned zero-mileage” trend offers significant savings to car buyers, it also affects consumers’ rights. For instance, a brand new 2024 Nio ET5T in China costs 298,000 NDT (approximately $41,440), but as a “pre-owned zero-mileage” vehicle, the price drops to 185,800 NDT (around $25,743).

However, the warranty coverage decreases from 6 years or 150,000 km for the entire vehicle and 10 years unlimited mileage for the battery system to 3 years/120,000 km for the entire vehicle and 8 years/120,000 km for the battery, resulting in a loss of about 20% of the initial benefits.

At the Shanghai Used Car Trading Center, about 10% of the displayed vehicles belong to the category of almost-new pre-owned cars. These cars come from various sources, including 4S dealers (manufacturer’s stock), demo cars, or even vehicles previously owned by social media KOLs.

The discounts on these cars vary significantly. For instance, the Xiaomi SU7 is offered at a discount of nearly 20,000 NDT (approximately $2,782), while vehicles from the IM brand, under the SAIC group, can be sold at a price lower by 100,000 NDT (around $13,907), equivalent to 10-30% of the value of a brand new car.

Car News China suggested that this strategy might mislead consumers into believing that car manufacturers have higher sales figures than they actually do, which could significantly influence purchasing decisions. Experts in the industry also worry that this trend could destabilize car prices and lead to faster asset depreciation.

Seeking Solutions

Last year, China’s automotive market witnessed price adjustments in over 200 models. In the first four months of this year, 60 models have already been discounted. Especially in May, the trend of price reductions became more pronounced, with some models offering discounts of more than 50,000 NDT ($6,954).

Mr. Cui Dongshu, Secretary-General of the China Passenger Car Association, noted that nationwide inventory reached 4 million vehicles at the end of April, higher than in previous months, and is expected to continue rising, especially during the low season for the market in May-July.

To address this issue, a meeting was held with several Chinese car manufacturers to discuss the “pre-owned zero-mileage” phenomenon and possible solutions to promote the used car market.

Notable solutions included enhancing the management of new and used car registrations, establishing a comprehensive vehicle lifecycle traceability system, and clarifying industry management standards to tightly control the resale of cars immediately after registration.

The meeting also proposed that Chinese car manufacturers, especially in the new energy vehicle sector, should shift their focus from sales volume to product quality and service improvement. Consumers are advised to be vigilant and prioritize quality and service assurance over price when choosing a car.

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