(Yicai) Aug. 26 -- The price war that has waged in the Chinese market for new automobiles over the past two years is now dragging down the used-car trade, where shrinking resale values, especially for second-hand new energy vehicles, are squeezing dealers hard.

“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 mart in Shanghai's Pudong New Area, told Yicai.

Xiao gave as an example the BYD Han Qianshancui version, which sold new for nearly CNY340,000 (USD47,540) two years ago, but now costs just over CNY150,000 used.

The price of the Nio ES6 Battery-as-a-Service edition is depreciating the fastest among used NEVs, according to multiple dealers at the same mart. Several such models are listed for just over CNY100,000, compared with a launch price of more than CNY400,000, they noted.

Weak demand for second-hand ES6 BaaS models is the main reason for the price tumbling, dealer Ge Ming said. “There is some demand in Shanghai, but in other regions, no one wants the car,” he pointed out.

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 is not used, with the obligation lasting for seven years, Ge said. Pre-owned cars are no exception, he noted, adding that the billing cycle starts when the used auto is bought.

Second-hand Teslas 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 a CNY3,000 to CNY5,000 (USD420 to USD700) profit per sold Tesla, we accept it," Xiao pointed out.

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

Aggressive discounts on new cars, coupled with negative perceptions of used vehicles, have diverted some buyers from the used to the new car market, Zhang pointed out, adding that weaker bargaining power and rising operating costs are hurting the viability of used-car dealers.

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

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

"Many 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