Industry Insights | Full Ban on Migrant Restriction Policies Takes Effect on August 1st, Further Promoting the Free Circulation of Second-hand Vehicles

In fact, this is not the first time in the industry that a proposal has been made to cancel the restriction on the movement of second-hand vehicles. As early as 2016, the 'Several Opinions on Promoting Convenient Transactions of Second-hand Vehicles' issued by the General Office of the State Council mentioned that 'local people's governments should strictly enforce the 'Regulations of the State Council on Banning Regional Blockades in Market Economic Activities' and shall not formulate or implement policies restricting the movement of second-hand vehicles into their areas. Second-hand vehicles that meet national emission and safety standards for motor vehicles in use, within the validity period of environmental protection regular inspections and annual inspections, can go through the relocation procedures. The state encourages the elimination and requires the elimination of relevant vehicles, as well as areas with specific requirements for air pollution prevention and control identified by the state (Beijing-Tianjin-Hebei region: Beijing, Tianjin, Hebei; Yangtze River Delta: Shanghai, Jiangsu, Zhejiang; Pearl River Delta: Guangzhou, Shenzhen, Zhuhai, Foshan, Jiangmen, Zhaoqing, Huizhou, Dongguan, Zhongshan, and other 9 cities). Localities that have already implemented policies restricting the movement of second-hand vehicles should cancel them by the end of May 2016.' Although exemptions have been given to regions such as Beijing-Tianjin-Hebei, Pearl River Delta, and Yangtze River Delta due to environmental protection considerations, from the implementation in recent years, other provinces and cities have not fully implemented these exemptions.

Judging from the decisions made at this regular session of the State Council, the determination to cancel the restricted migration policy is unprecedented. This is also closely related to the current difficult economic environment within the used car industry. All parties in the industry have reached a consensus:Simply encouraging new car consumption is not enough to promote a comprehensive recovery of the automotive industry. Measures to promote the circulation of used cars and boost market confidence are imperative.This is also the background for the introduction of this policy. However, the actual impact of this favorable policy on the industry still requires observation of its implementation. This article will interpret the impact of this policy relaxation on the used car industry from aspects such as historical transaction data, existing business models, and pain points.

According to data from the China Association of Automobile Circulation, the transaction volume of second-hand cars in 2021 was 17.5851 million units, with a growth rate of 22.6%. In the same period of 2020, affected by the epidemic, the national transaction volume of second-hand cars was 14.34 million units, a decrease of 3.9% compared to the data of 14.923 million units in the same period of 2019. Starting from the fourth quarter of 2021, the national transaction volume of second-hand cars has shown continuous negative growth, mainly due to the sporadic epidemic and the relatively high base level in the same period of 2020. In the same period of 2020, car purchase demand was concentrated in the fourth quarter, with a 17% increase in transaction volume compared to the third quarter, reaching the highest growth rate for the same period in history. Among them, the transaction volume of second-hand cars reached 1.7 million units in December 2020, the highest point in history. Looking at the transaction curve in 2021, the overall trend is oscillating upwards, with December still being the highest point of the year, which is basically consistent with the historical transaction trend.

Judging from the data on used car transactions, although it has maintained a relatively high annual growth rate, China, as the world's largest automobile consumer, still has a significant gap in terms of market activity compared to developed countries such as Europe and America.

Since 1990, the annual transaction volume of used cars in the United States has been stable between 40 million and 45 million vehicles, about three times that of new cars. In recent decades, the transaction volume of used cars in Germany has also been more than twice that of new cars, and the ratio in South Korea and Japan has basically stabilized at 1.45:1. China's new car sales volume in 2021 was approximately 1.5 times that of the United States, reaching 21.482 million vehicles. However, the transaction volume of used cars in 2021 was only 17.5851 million vehicles, accounting for about 70% of new car sales. This not only indicates the huge growth potential of the Chinese used car market but also reflects that there are still many obstacles in domestic used car transactions, among which the migration restriction policy is an important barrier to cross-regional circulation of used cars.

A key indicator worthy of attention in used car transactions is the transfer-in rate.As the barriers to the circulation of used cars in various regions across the country are gradually being eliminated, the free circulation of used cars nationwide is becoming faster and faster. This favorable factor has led to an increasing proportion of cross-regional transactions of used cars in the past 10 years.

In 2021, the transfer rate of used cars was 27.3%, slightly declining compared to the same period last year. This data reflects that over 70% of current used car transactions are within the same region, with cross-regional transactions accounting for less than 30%. However, from the demand side, due to the objective economic disparities between regions, the regional differences reflected in new car sales and service life have not been transmitted to used car transactions. The main limiting factor is the restriction on migration.

As automobiles, as a major consumer good, exhibit significant differences in market transaction characteristics, which are reflected in transaction prices as regional protectionism and low price transparency. As a subset of the automotive market, used car transactions can be simply summarized as 'one vehicle, one price' and 'one place, one price'. For consumers, the barriers to used car circulation not only drive up prices but also narrow their choices and increase exit barriers, overall weakening consumers' confidence in used cars. Therefore, the introduction of a comprehensive policy to lift restrictions on migration is aimed at improving these drawbacks by guiding the development of used car markets through policy measures.

So what does a complete abolition of housing restrictions mean?

Firstly, it has increased the liquidity of used cars.In first- and second-tier cities, many used cars of good quality, including quasi-new cars, can be moved nationwide. Similarly, some low-priced used cars with National V emissions from other regions can also smoothly flow into first-tier cities, facilitating their purchase by users in these areas.

Secondly, the increase in vehicle mobility will enrich the supply of used cars in the market, broadening consumers' choices.This will promote a reasonable return of used car values, while also bringing used car prices back to a reasonable differential level across regions.