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A Chinese company in Guangzhou recently exported 300 used cars to buyers in Cambodia, Nigeria, Myanmar and Russia. The shipment was a first for China, which till now had restricted large-scale exports of used cars in deference to manufacturers, who feared that poor vehicle quality could damage their reputations. There will be more such shipments — and their impact will reverberate well beyond the mainland’s used-car lots.
With all the focus on electric and self-driving cars, it’s easy to overlook just how big and influential the market for old-fashioned junkers remains. In developed economies, more than twice as many used cars are sold as new ones. For example, there were 17.3 million new vehicles sold in the U.S. during 2018 — and 40.2 million used ones. The gap is forecast to widen in 2019, driven by the ever-escalating price of new cars and a flood of used vehicles coming off lease. Automakers may be forced to slash prices of new vehicles and eliminate incentives in order to prop up sales.
Rich countries from Japan to the U.S. have shipped at least some of their older vehicles to developing nations such as Mexico and Nigeria for decades now. The trade has done more than get polluting autos off the roads; it has helped boost new-car sales by reducing the supply of secondhand alternatives.
Compared to domestic sales, of course, the numbers are quite small: The U.S. exported just under 800,000 used cars last year, a number that’s remained relatively steady since 2013. Nevertheless, that accounted for nearly a third of the passenger vehicles and light trucks exported from the U.S. in 2018. Japanese exports often approach 1 million vehicles annually. Singapore, Korea, several European countries and Canada also export a significant number of used cars.
It makes sense that China would join them. For one thing, inventory is building. In 2018, China sold 28 million new cars and nearly 14 million used ones. Soon, the ratio will flip: China is home to more than 300 million registered vehicles — the largest fleet in the world — and it’s just a matter of time before more of them are resold. The quality of Chinese cars has also improved to the point where many developing-world consumers may well choose them as a cheaper alternative to used Toyotas or Fords.
At the same time, China’s automobile industry is in a slump and policymakers are keen to find ways to boost it. Used-car exports, the government says, can “stimulate the vitality of the domestic automobile consumption market.”
That spells competition and possibly trouble for the automotive sector globally. An increase in the supply of used cars will inevitably drive down prices, especially in the emerging markets such as Nigeria and Cambodia to which Chinese exporters will be marketing their vehicles.
While that’s good news for prospective car buyers in Lagos, over the long term it will impact new car sales and even manufacturing in developing countries, many of which are part of automakers’ global supply chains. Likewise, as fewer cars are exported, say, from the U.S., the competition between new and used vehicles domestically will only stiffen.
And cars are just the beginning. Just as China’s factories drove down the cost of new goods over the last three decades, the growing piles of used stuff purchased — and now unloaded — by Chinese consumers will exert downward pressure on the price of used and new products everywhere.
China’s secondhand car exports are starting modestly and the country will take time to catch up to more established players. But this isn’t semiconductor manufacturing; long-term, China will have more used cars to sell than anybody and its export business will inevitably grow into the world’s biggest. Global automakers might want to strap on their seatbelts.