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Unprofitability Is A Common Phenomenon in the Used-car Industry
Unprofitability Is A Common Phenomenon in the Used-car Industry
PHOTO: Credit to Unsplash
Associated Company
Chehaoduo Chehaoduo

On March 28, used-car trading platform Guazi announced that it has reached in-depth cooperation with Taobao used-car platform. The cooperation will focus on new automobile retail and maintenance services, second-hand car auction and accelerating the circulation of the used cars on the platform. 

This is a brand new move from Guazi since Chehaoduo Group -Guazi's parent company- announced that Chehaoduo to complete a USD 1.5 billion financing and to launch a nationwide business; the new financing was announced at the beginning of 2019. 

Questioning the "No Price Difference" Model

Regarding the cooperation with Taobao's used-car platform, Guazi stated that the two sides have started cooperation from "Alibaba auction", and Taobao's store will be launched soon.

According to YAN Jinghui, an expert from the committee of the national automobile circulation association, Guazi aims at creating a closed loop for the second-hand car trading through the new online and offline retail model.

Currently, the service fee for trading a car on Guazi used-car platform is about 13% (the seller pays 4%+ the buyer pays no more than 9%). Guazi Yanxuan Store's operational model of car trading (c2b-b2c) is similar to that of traditional used-car dealers. The difference is the car dealer earns the price difference after the car resale; whereas Guazi is charging the same price to buy the car as to sell it, but it is charging both parties and provides related service guarantee after the transaction.

At present, Guazi still operates under the motto of "no middlemen enjoys the price difference". However; offline used-car dealers are actually a link in the trading chain of guazi.com, car dealers can buy vehicles from the platform or sell them to the individual consumers as well. Therefore, it is not rigorous to say that there is no middleman on Guazi platform.

The Common Problem of the Entire Used-car Industry is Profitability

Currently, used-car e-commerce mainly consists of two camps: 2B terminal and 2C terminal. The transaction subjects include e-commerce platforms, various dealers, 4S stores and individual users, as well as other auxiliary parts of the transaction; including information service platforms, detection data service platforms, financial service platforms and logistics service platforms.

In terminal 2B, the B2B auction model represented by UXIN auction which mainly serves 4S stores and second-hand car dealers, so as to realize mutual circulation between terminal B. The C2B auction model, represented by Dasouche and Chezhibao, aims to help individual users to sell their cars to the car dealers. In terminal 2C, the B2C model represented by UXIN is to build a bridge for second-hand car retailers and individual car users. The C2C model, represented by Renrenche and Guazi, matches individual users through clues on the platform to execute the direct transactions between the two parties.

In order to develop the business chain of vehicle detection, platform sales, and after-sales maintenance, many leading companies in the industry have put their focus on platform construction and brand promotion. This means that in addition to the daily operating costs of the platform, many companies also have to bear the costs of vehicle testing, extended warranty and after-sales service, as well as the marketing costs of huge advertising investment. The current Used-car e-commerce is more like an information exchange platform than a real e-commerce platform.

Used-car trading has not found a good profit model; it is still a loss-making industry. In 2015, Guazi spent CNY 300 million in advertising on major media channels across the country. During the same period, Renrenche (人人车) has assigned HUANG Bo (黄渤) as the spokesperson and spent CNY 70 million on advertisements.

In 2016, the marketing expenses of Guazi and Renrenche rose to CNY 1 billion and CNY 500 million respectively, and UXIN used-car platform also spent CNY 794 million on marketing. While Renrenche spends CNY 800 million on marketing, Guazi exceeds CNY 1 billion and UXIN topping CNY 2.2 billion, the industry entered a period of white-hot competition.

UXIN, founded in 2011, is an e-commerce platform focusing on second-hand car retail services, which includes both B2B business (formerly UXIN) and B2C business for individual consumers. On June 28, 2018, UXIN became the first used-car company to go public on Nasdaq under the ticker symbol 'UXIN'.

UXIN's total revenue in 2018 was CNY 3.315 billion, up 70% year-on-year, according to the company's financial report disclosed. However, UXIN has not yet gotten rid of its losses completely, as its net loss reached CNY 1.538 billion.

According to the data released by iResearch, in 2017, the penetration rate of used-car e-commerce transactions has reached 12.5%, and it is expected to reach 28% in 2022. However, B2C market accounts for 76.7% of the total transaction share in the overall volume of 2C mode, while C2C market only accounts for 23.3%. This means that only 20% of Guazi's C2C market share, and it is unprofitable.

Enterprise Information

Chehaoduo develops an online platform for selling used cars in China.
CATEGORIES: Auto
Last Funding Type
Series D
Number of Employees
50-100
Number of Funding Rounds
7
Total Funding Amount
3.37B

Enterprise Information

Chehaoduo
Chehaoduo develops an online platform for selling used cars in China.
CATEGORIES: Auto
Last Funding Type
Series D
Number of Employees
50-100
Number of Funding Rounds
7
Total Funding Amount
3.37B

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