Beijing encourages automakers and second-hand trading platforms to take action and enhance the standards of their used-vehicle market, given the current price competition.
Stabilizing Car Prices in China's Auto Market: Zero-Mileage Used Vehicles Under Scrutiny
In a move aimed at curbing market volatility, China's Ministry of Commerce convened a meeting on Tuesday with major automakers, industry groups, and second-hand car trading platforms to address the issue of "zero-mileage used vehicles," according to Reuters. The Ministry did not immediately respond to a request for comment.
These vehicles, while technically used due to their registration and licensing, are sold as pre-owned after being purchased by dealers from manufacturers at relatively low prices, according to Tian Maowei, a sales manager at Yiyou Auto Service in Shanghai. Manufacturers employ this strategy to offload excess inventory and boost short-term revenues; however, it creates difficulties for the overall market, as consumers face artificially deflated prices, making it challenging for manufacturers to break even.
Notably, these zero-mileage cars are priced more than 30% lower than new vehicles, dealers have reported. The broader question remains as to whether the Ministry of Commerce will continue to allow this sales model. Dealers suggest that the practice may not constitute law-breaking when viewed independently, although it does contribute to opaque market transactions and potentially undermines consumer trust.
Remarkably, the regulatory scrutiny facing this practice could have profound implications for both manufacturer profitability and market stability. In the short term, artificially inflated sales figures can enhance a company's profits and stock performance, particularly in the fiercely competitive electric vehicle (EV) sector. On the other hand, long-term risks stem from the potential for regulatory penalties and a loss of consumer trust if the practice is deemed detrimental to market transparency.
The transparency issue extends beyond new car sales to the used car market, where genuine pre-owned vehicles may struggle to compete with zero-mileage vehicles. Meanwhile, market instability could arise from regulatory interventions intended to promote transparency and stability, potentially leading to temporary market corrections.
In conclusion, while the legality of zero-mileage used vehicles remains undecided, it represents a complex issue for market transparency and consumer trust. Any regulatory action could significantly impact manufacturer profitability and necessitate a shift towards more transparent practices.
The regulatory scrutiny on zero-mileage used vehicles in China's auto market also impacts other industries, such as finance, as it affects the values assigned to these vehicles for loan purposes. This, in turn, could disrupt the lending business within the sector.
Moreover, in the aerospace and transportation industries, where large amounts of funding are required for research and development, the sale of zero-mileage vehicles can potentially divert funds that could have been used for innovation and growth.
Lastly, the business community at large is affected by the practice of selling zero-mileage vehicles. Transparency issues arising from such sales practices can undermine consumer trust not only in the automotive industry but across various sectors, potentially leading to a decline in consumer confidence and business growth.
