92% of Chinese Used Car Dealers Face Losses as Prices Plummet

In 2024, the total transaction volume of used cars in China reached 19.61 million units, marking a 6.52% year-on-year increase. However, 92% of used car dealers are facing losses, and less than 1% have a gross margin exceeding 10%.

With fierce competition and ongoing price declines in the new car market, what changes can we expect in China’s struggling used car industry?

The Average Price of Used Cars in China Drops Significantly

Over the past two years, selling used cars in China has become increasingly difficult due to the growing inventory cycle. In 2022, the average inventory cycle for used cars was 47 days. Since February 2023, it has consistently exceeded 50 days, peaking at 56 days—meaning cars could take almost two months to sell after being stocked.

This immense inventory pressure is straining the cash flow of used car dealers, forcing them to lower prices. In 2022, the average transaction price of used cars in China declined from ¥71,200 at the start of the year to §59,300 by year-end. Prices have remained low, reaching ¥63,900 by the end of 2024.

As prices continue to fall, profit margins for used car dealers are shrinking, sometimes leading to losses. A decade ago, 15.9% of Chinese used car dealers had a gross margin of over 10%, but by 2024, this proportion had dropped to less than 1%. Meanwhile, the percentage of dealers operating at a loss has surged from just 1% ten years ago to 92% today.

In summary, declining demand for used cars forces dealers to lower prices to clear inventory, continuously squeezing their profit margins.

Why Is the Chinese Used Car Industry in Crisis?

The downturn in the domestic used car market is primarily due to the continuous decline in new car prices. In January 2023, Tesla slashed its prices in China, triggering a wave of reductions across the entire automotive market. These cuts have impacted not only electric vehicles (EVs) but also traditional fuel-powered cars, and the trend shows no signs of stopping.

For used car dealers, the sharp decline in new car prices has led some consumers—who initially planned to buy a used car—to reconsider and opt for new vehicles instead. Moreover, the drastic reduction in new car prices directly affects the pricing of used cars, forcing dealers to adjust their rates to attract buyers, further squeezing their profit margins.

Another factor affecting profitability is increasing market transparency. Historically, used car dealers profited from information asymmetry, where buyers had limited knowledge of a vehicle’s history, repairs, or accidents. Dealers often exaggerated the scarcity of cars to justify higher prices.

However, with the rise of the internet, consumers can now easily compare prices across platforms and access information about a car’s accident history, maintenance records, and more. This has empowered buyers to make better-informed decisions.

Additionally, market competition has intensified. Public data shows that the number of used car dealers grew from 560,000 to 799,000 in the past two years—a 40% increase—while market transactions grew by only 4.7%.

For used car dealers, the current landscape presents challenges from both new car dealers and competitors within the used car market, while consumers have become increasingly discerning. With low entry barriers, most used car operators are small-scale dealerships or individual entrepreneurs. These businesses, lacking brand recognition, capital, resources, and management expertise, are the most vulnerable to ongoing industry changes.

How Can Chinese Used Car Dealers Overcome the Crisis?

To survive the crisis, many used car dealers are turning to online channels as a new way to attract customers, leveraging short videos, live streaming, and other digital strategies.

Today, Chinese used car buyers are more likely to browse and build trust through live streaming before visiting a physical dealership. Dealers who have capitalized on this shift have found that online sales can account for 70% to 90% of their total transactions. Whether customers visit the dealership directly or make an appointment online, many have already watched related videos or live streams on short video platforms. As a result, even if a dealer’s live stream audience is small, conversion rates remain high.

As the industry evolves and competition intensifies, online traffic is becoming increasingly concentrated among top influencer dealerships, making traditional marketing methods less effective. Used car dealers must now embrace video and new media to stay competitive. After all, starting early is better than waiting—only by continuously optimizing their approach can dealers seize new market opportunities.

In conclusion, China’s used car market has moved beyond the era of "easy money." The industry is undergoing a natural selection process, where larger players overtake smaller ones. This ongoing consolidation marks the beginning of an industry-wide reshuffle.