A good steer: Why China’s second-hand car market is booming
Country well on way to becoming the world’s largest market for used vehicles – thanks in part to people like Du Xiyong, cofounder of Renrenche
Ting Yan UPDATED : Saturday, 6 Feb 2016, 8:19PM
China s burgeoning second-hand car market is well on its way to becoming the world s largest, and this success is at least in part due to people like Du Xiyong, cofounder of Renrenche.
His company, a leading C2C (customer-to-customer) used car selling website, is one of the countless trading platforms competing for a share of the emerging market many of which have been bombarding mainland cities with advertisements since the middle of last year.
The market has become so huge there is no single model or company which can satisfy everyone s needs, according to Du, but he believes that the long-held Chinese habit of purchasing used cars from agencies may be beginning to change.
His Beijing-based company was established in April 2014, by four men all under 40 years old.
Besides Du, who has 12 years experience of editing auto news, the other three are former IT engineers from search giant Baidu.
All four share a fascination with cars.
READ MORE: Tencent fuels US$85 million funding round in Renrenche as used-car market speeds up
At the beginning of 2014, we sat together to discuss setting up our own business. We were wondering which industry to enter and finally we decided to engage in the second-hand car market because it has a huge potential, Du said.
The mainland became the world s largest auto market in 2009, boosted by the government s reduction of tax on car purchases.
Last year, 24.6 million cars were sold in China, a rise of 4.68 per cent year on year, according to the China Association of Automobile Manufacturers.
New car sales in China are twice the volume in the United States, while the second-hand auto market is about one third of the size, said Du.
Last year, seven million used cars were sold to new owners one million more than the year before.
The China Automobile Deals Association estimates that by 2020, the number of second-hand cars traded will equal that of new car sales at 29.2 million.
We thought it was a prime time to enter the second-hand auto market.
The average age of a used car on sale in China is 6.2 years and many people bought their first car in the years 2008-2009, when there was a boom in car sales.
In August, the company received funding of US$85 million from a consortium led by the internet giant Tencent.
Du said compared with the traditional B2C (business-to-customer) model, in which people buy used cars from stores, the C2C model that his company follows was better as it squeezed commissions.
Usually there was a 30-50 per cent gap between the price the agency paid the old owner and the resale price it charged the new one, Du said.
As its adverts are keen to point out, with Renrenche there is no agency to markup the price the website merely facilitates the trade between individual owners and buyers.
Sellers list their cars on the site for free. Renrenche then sends workers to examine whether the vehicle has been in an accident or not, whether it has water damage and whether it has undergone any large-scale repairs.
It then issues an examination report for each car displayed online.
Buyers pay 3 per cent of the car price to the company once the deal is done.
Renrenche offers free repairs for cars within one year or 20,000km of the sale.
After the car is sold, buyers can return it to Renrenche and ask for a full refund within two weeks, Du said.
READ MORE: Vehicle sales boom spawns China s used car market
All we are doing is creating a transparent trading venue to enable car owners to sell at a high price and in the meantime, taking away buyers concern over the condition of the cars, he said.
Renrenche started in Beijing before expanding to Guangzhou and Nanjing ( ) at the end of 2014. In January last year, 200-300 used cars were sold through Renrenche; by December sales had rocketed to 10,000 and the company had a presence in 30 mainland cities.
The most popular second-hand cars were those priced at 100,000 yuan (HK$118,500), while 60 per cent of cars traded on the platform were between two and five years old, Du said.
Last year, leading domestic used car trading websites declared an advertising war, with some courting the endorsement of famous people, others offering zero-commission deals to win the public over.
In Du s eyes, services from these companies are more or less the same. He says Renrenche s advantage is its online traffic largely thanks to his fellow founders training at Baidu, China s answer to Google.
They worked at Baidu and know how to make our advertisements and our company s website more visible to internet users searching on Baidu.
For example, there are 3.7 million web pages of our website included in this search engine s database, but for one of our competitors, Guazi.com, there are only 700,000, he said.
His company has invested 50 million yuan in display adverts since November, compared with the 200 million yuan of many of his competitors. But Renrenche had achieved the same result from the marketing campaign as its competitors, said Du, mainly due to its superior online traffic operation.
Over the past few months, the company has been besieged by reports that the international consulting firm Roland Berger had found Renrenche faked its deal figures. The reports claimed Renrenche had been found to have doubled its actual deal numbers in its publicity materials.
But even Roland Berger has denied this, saying it has never investigated Renrenche and that it had not provided the quoted figures.
Du believes such negative reports were part of an orchestrated smear campaign on behalf of one of the company s many rivals. He defended his company s statistics as transparent, reliable and traceable.
Before we received funding, institutional investors would conduct due diligence work and we showed evidence for each deal, including customers telephone numbers, bank account numbers, bank statements for the deal and transaction record issued by the vehicle management authority, he said.
Market competition is fierce right now, but in the future it will be white-hot, Du said. We believe in the long term, reputation is the deciding factor.
The company is preparing to launch an auto finance business, a sideline that was essential for any car dealer, he said.
Du said the company had never considered listing, and regarded doing so as something too far away .