(Yicai) Aug. 26 -- The price war in the Chinese car market, the world's biggest, has extended to used cars and hampered the operational performance of such dealers, with the resale value of pre-owned new energy vehicles dropping the most.

"Once a new car is bought, its value in the used market immediately drops to 80 percent of the original price, with some special-edition models seeing even steeper declines," Xiao Wen, a dealer at a big used auto market in Shanghai's Pudong New Area, told Yicai. "The BYD Han Qianshancui version, which sold new for nearly CNY340,000 (USD47,540) two years ago, currently costs just over CNY150,000 used." 

The price of the Nio ES6 Battery-as-a-Service edition is depreciating the fastest among used NEVs, multiple dealers at the market said to Yicai. Several such models are listed for just over CNY100,000, compared with the car's launch price of more than CNY400,000 several years ago, they pointed out.

The weak demand for used ES6 BaaS models is the main reason for the price tumbling, dealer Ge Ming said to Yicai. "There is some demand in Shanghai, but in other regions, no one wants the car".

Nio's battery rental pricing model deters potential buyers, who must pay the carmaker CNY728 (USD100) per month to rent a standard battery pack, a fee that applies even if the car stayed in garage during the month, with the pay obligation lasting for seven years, Ge said. Pre-owned cars are no exception, Ge noted, adding that the billing cycle starts when the used auto is bought.

Tesla's used cars have relatively higher value retention rates and more stable prices, said Xiao Wen, who specializes in these vehicles. The main reason is that demand for used Teslas remains strong, ensuring faster circulation in the market and preventing dealers from being "stuck" with such inventory for too long, he added. 

"Even if we only make CNY3,000 to CNY5,000 (USD420 to USD700) in profit per sold Tesla, we accept it," Xiao pointed out.

Used Car Market Keeps Shuffling

"Since the outbreak of the Covid-19 pandemic in 2020, the used car market has been going through a shuffling period," Zhang Fan, an industry expert, told Yicai. "The sector was first impacted by the pandemic and then by macroeconomic fluctuations and the large-scale entry of NEVs, which triggered market adjustments that directly led to poor overall performance." 

The continuous new car price cuts and negative reports about used autos have prompted some consumers who planned to buy pre-owned vehicles to switch to new ones, Zhang pointed out, adding that narrower negotiation margins and significantly higher operating costs have also hurt the viability of relevant dealers.

Almost 90 percent of entries in this year's China's Top 100 Used Car Dealers list had a average gross profit margin of less than 6 percent per unit, according to a report released by the China Automobile Dealers Association. Forty-nine dealers had a gross profit margin between 4 and 6 percent, while the number of those with a margin below 4 percent increased to 35 from 29 a year earlier.

Most small and medium-sized used car dealerships Zhang has spoken to are operating at a loss, and some have already switched to other businesses, he said, noting that the industry is still scrambling.

"Many used car dealers have exited the market, as evidenced by the increasing number of closed stores," Zhang noted. "Among those still in business, only a small number make a profit."

Editors: Tang Shihua, Martin Kadiev