A government campaign in China against the high pricing of luxury cars is hitting the profit margins of auto dealers, prompting them to supplement income through the online trading of second-hand vehicles.
The strategy is a major shift from relying on showroom sales of luxury cars, a business that had rewarded dealers with profits of as much as 10 percent. Many dealers had not been involved in the used-car market as they considered the resale margins paltry.
But with new-car prices falling as Beijing's campaign progresses, Jaguar dealer China Yongda Automobiles Services Holdings and at least three peers have set up online marketplaces where they charge vendors for selling used cars, and offer consumers related products and services such as insurance and repairs.
As consumers return to the websites for sundry services, dealers such as Wuxi Commercial Mansion Grand Orient Co hope they will eventually be tempted to upgrade and buy one of Wuxi's new Porsches or Cadillacs.
"E-commerce is the trend, and we need to change the way we do business," President Wang Zhen of Baoxin Auto Group , China's top BMW dealer, said in an interview. "There is huge potential in the used car market."
But the strategy is a double-edged sword. Used-car buyers and sellers could be drawn to the sites because of the dealers' expertise. But the market is largely unregulated so if a transaction goes awry, the dealers risk reputational harm.
"A big hurdle in China's used-car market is the lack of trust," said analyst Wan Dong at Capital Securities. "Without a credible agency that tells you how much a second-hand car is really worth, you don't dare to buy it."