Who Strangles Secondhand Vehicle Market?

The secondhand vehicle market in Shanghai, after several years’ fast development, encountered the depression about three years ago. The financial crisis made the situation even worse.

In the secondhand vehicle trade market in North Zhongshan Road, Shanghai, few customers can be seen on weekends. Nearly all the dealers in the market are drinking tea while chatting. The screen on the wall of the market mall shows the information of various vehicles, but no one is interested in it. The system which waits for the dealers and customers to bid has nothing to do but to show the information relentlessly. The dullness is easy to be seen.

As the oldest secondhand vehicle trade market in Shanghai, the trade volume of this market has been keeping decreasing since the beginning of 2009. According to a director of the management department, the trade volume of the secondhand vehicles in Shanghai has never seen fast development in the recent three years. The average growth rate in that period is only 2%, much lower than the growth rate in the other provinces or cities in China, as well as the growth rate of the new vehicles in Shanghai.

Harsh Requirements in Environmental Protection

In fact, the depression is seen not only in the secondhand vehicle trade market in Shanghai, but also the one of the whole country.

According to the data from the China Automobile Dealers Association (CADA), the trade volume of secondhand vehicles in China was 2.74 million in 2008, with a year-on-year growth of 3%. In comparison, the sales volume of new vehicles was 9.38 million and the year-on-year growth was 6.7%. Therefore, the secondhand vehicle market in China has come into a rigorous winter.

Judged from the trade volume of the secondhand vehicles in China, less than 10% of the secondhand vehicles are sold in the 4S stores (a kind of vehicle sales store which integrates the sale, spare part, service and survey); 75% are sold in the brokerage institutions, about 3% are sold in some distribution enterprises. Besides, some consumers choose to buy the secondhand vehicles directly from the previous owners. However, a lot of deals in the 4S stores and distribution enterprises are realized through the brokerage institutions.

“A lot of companies are cutting jobs. The situation is bad,” said a worker in the secondhand vehicle trade market in North Zhongshan Road. According to him, about one third of employees in the brokerage companies in the market have lost their jobs in this year. If the situation can not take a favorable turn, maybe he will also be fired and have to go back to his hometown. Most of the employees or employers in the 11 secondhand vehicle trade markets in Shanghai are from the other provinces or cities. They organize the brokerage companies or work for those companies.

Most of the secondhand vehicles in Shanghai are sold to the other provinces. Therefore, the trade volume is easily affected by the change of the policies in the sale destinations. A notice on the North Zhongshan Road-based secondhand vehicle trade market shows that Hangzhou Municipal Government requires that the emission amount of the secondhand vehicles which will be used in Hangzhou should meet the National Standard III. And this requirement takes effect as of February 22, 2009.

For those brokerage companies which mainly sell their secondhand vehicles to Hangzhou, this requirement is an unbridgeable hurdle. Many of their secondhand vehicles can not meet the standard, which means they can not be sold to the Hangzhou market. “Most Chinese people make full use of their cars before they sell them. How can those secondhand vehicles meet the National Standard III of the emission amount?”

The harsh environmental protection requirements are implemented in more and more places, which have already become the “forbidden areas” for the secondhand vehicle dealers. “We hope that there is a unified policy which is effective in the whole country. The frequent change of the policies and the phenomenon that different policies are implemented in different places really bring us great trouble,” said a secondhand vehicle dealer. If a unified policy can be implemented, the secondhand dealers can make preparation, which can help a lot to the purchase and sale of the secondhand vehicles.

Restrictions on the License Plates

Which policy brings about the largest influence upon the secondhand vehicle market in Shanghai? Most secondhand vehicle dealers believe that the current license plate system can not be changed.

Because the price for a license plate usually fluctuates around 30 thousand yuan (USD 4,387), a lot of people who have the willing to buy the secondhand vehicles can not afford such a high price. If a man buys a secondhand vehicle at the price of 40 thousand yuan (USD 5,850), he will have to pay for 70 thousand yuan (USD 10,000) to make the vehicle able to run on the road. The price is nearly the same with the one of a new vehicle with a license plate not starting with the Chinese character “Hu” (short name for Shanghai), which most people prefer. Therefore, the trade volume of the secondhand vehicles with local license plates decreases a lot in Shanghai.

“When the price of a license plate was from 8,000 yuan to 10,000 yuan (USD 1,170 1,462), we had a large number of customers,” said the director of the North Zhongshan Road-based secondhand vehicle trade market. Recently there is news that the price of Shanghai license plate will be lowered. However, the director suspected its truth, “the most possible change will occur to the limitation on the number of license plates given out each year, which is 80,000. The license plate auction system is quite unlikely to change.”

The Shanghai government has already taken many measures to invigorate the secondhand vehicle market. But the effect is rather tiny. The above-mentioned director attributed the depression of the market to the bad performance of the market credit. According to him, most of the secondhand vehicle dealers in Shanghai are suffering deficit.

It is generally believed that the deficit of the secondhand vehicle dealers is caused by the taxation setting. The value added tax rate for the secondhand vehicle dealers is 2%; the one for the secondhand vehicle auction companies is 4%; however, the value-added tax rate for the secondhand vehicle brokerage companies is zero with only 5% of the sales tax to be imposed. If selling a 100-thosand-yuan (USD 12,626) secondhand vehicle, the secondhand vehicle dealers will pay for the tax of 2,000 yuan (USD 292.5); the auction companies will pay 4,000 yuan (USD 585.3) while the brokerage companies only need to pay 20 yuan (USD 2.94).

“For that reason, the secondhand vehicle dealers and auction companies choose to conduct the trade through the brokerage companies to avoid the high tax,” said the above-mentioned director. The dealers of the brand secondhand vehicles always have to endure the large operating cost, which brings a lot of hurdles to the main distribution channels of China’s secondhand vehicle market.

Now, nearly 99% of the secondhand vehicle deals in China are conducted through the brokerage companies. The government has issued policies to impose value-added tax upon those deals, but quite small tax amount is collected.