31-year-old Yuanyi lives in central China’s Xi’an city with a wife who has been paralyzed for many years. He has supported the family with humble wages earned from an insurance company and has long since dreamt he might someday travel with his wife to her dream destination.
In order to make his dream attainable, Yuanyi has planned to buy a car. In fact, he bought a used car from a local retailer, but the car was overpriced and constantly malfunctioned, leading him to sell the car and attempt to find another one.
In September, Yuanyi searched online and encountered an advertisement for Uxin used cars. He took a look at the company’s website with the hope of finding a good car. Luckily, he came across a 5-seat domestically-made MPV Beiqihuansu H2 that he really liked, but it was owned by someone who lived in another city. After consulting a sales agent, he was told that Uxin could deliver the car to him, with the entire package totalling just USD 5,188 (RMB 36,000).
“I never thought that I would buy a car online,” he said. However, he eventually made up his mind because Uxin ensured that the car could be exchanged if he encountered any problems within three days. Uxin also offered a 30-day guaranteed return policy in the event of a major traffic accident. He likewise found the one-year quality guarantee appealing.
Yuanyi’s story is not alone. Uxin (Nasdaq: UXIN) announced on Jan. 14 that its key service, cross-reginal transaction service volume is estimated to exceed 10,000 units during the December of 2018. The number was more than 75 times higher than that of the same period in 2017.
A nationwide trading network
Dai Kun, 36, Uxin’s Chairman and CEO has considered building a nationwide trading network for used cars since he founded the used car company in 2011.
At that time, Beijing’s automobile market was witnessing a historic transformation as the city introduced car purchase restrictions that sought to ease up enormous market demand by essentially requiring car buyers to obtain a legal license plate, allocated via a lottery system. It was predicted that the large automobile market of 800,000 cars sold per year would shrink to 240,000. This market shift also indicated new opportunities, as capital can be expected to flow to those with the most resources. In light of imminent restrictions on car purchases, Dai assumed that the used car market was big enough and the surplus of cars would likely overflow to cities beyond Beijing. He then came up with the idea of building a national trading network.
Dai founded Uxin in 2011. At present, the company participates in a number of business sectors including used car business to business (B2B) and business to consumer (B2C) services, as well as new car sales, motorcycle financing, automobile logistics, after-sales service, and more. Reportedly, Uxin penetrated more than 40% of the used car trade market in 2017. Chinese media reported that about 12.4 million used cars were traded in 2017. Then, on June 27 of this year, Uxin went public on NASDAQ as the first Chinese used car trading platform to be listed in the US stock market.
Apart from Uxin, there are two other large companies competing in the marketplace: Guazi and Renren Car. The business models of the two vary considerably. Founded in 2014, Guazi is a consumer-to-consumer (C2C) platform that provides services for buying and selling used cars through its web portal. Also founded in 2014, Renren Car is likewise based on a C2C business model. The two platforms provide car selections, but only within limited districts. The two are likewise similar in that they invest heavily in high-end car storage, which may hinder them further penetration into more Chinese cities.
Competition among the three companies has been intense, but the construction of a nationwide used car trading network differentiates Uxin from its counterparts. Uxin endeavors to mobilize the power of Internet and to be able provide car matching and services anywhere. The benefit of such a network, according to the company, has given Uxin the capacity to control the transaction chain that includes used car detection, display, logistics, and delivery. Ultimately, Uxin evolved from a B2B trading service to a comprehensive platform that now broadly penetrates the used car industry chain.
Standardizing the purchase of used cars
The prices of used cars of comparable quality are affected by factors such as geographical preference and circulation restrictions. Massive price differences often exists between different cities. Traditionally, customers are able to buy cars in the places they work and live in, but they often have limited opportunities to purchase cars from other cities. Although some buyers have the resources to do so, they typically have to pay significantly higher prices.
Luo Lei, deputy secretary-general of China Automobile Dealers Association, said that vehicles always flow from high-density areas to low-density areas. However, the demand for cars in second-tier and third-tier cities is high, but supply of cars there is relatively low, which is the opposite of first-tier cities. Therefore, a used car may be sold at a higher price in second-tier cities compared to first-tier cities.
Things may change in the year 2018. This year, China’s Ministry of Commerce began promoting the cancellation of the used car restrictions policy. In the past, some cities restricted the inflow of used cars that don’t meet environmental standards and thus prevented a massive influx of these vehicles into the local market. However, enforcement of the new policy may cause the used car market to flourish.
The nationwide used car trading network undeniably has its advantages.
The network helps to increase the inflow of cars into second-tier and third-tier cities, which gives customers in these cities a wider range of selection and increased chance of buying their favorite cars at reasonable prices. For example, if a customer in a small city such as Beihai, which is located in southern China’s Guangxi Province, searches for a used red Mercedes-Benz C-Class on Uxin’s platform, he may find hundreds of Mercedes-Benz C-Class cars. “You may not know where the cars come from, but our service makes sure that you can receive them in 5 days,” said Dai, the CEO. However, on other used car trading platforms, customers may have much fewer choices of cars. Clearly, the nationwide trading network makes the difference.
The network also helps lower costs for used car sellers. In fact, third and fourth-tier Chinese cities have much potential to grow. What local residents of such cities need are better services, which Uxin cross-reginal transaction service and its network aim to provide. Wen Chao, the Hasen used car seller in Xi’an, used to fly to many cities in China to select and purchase used cars to then take back to Xi’an. These business trips often costed at least RMB 5000 (USD 719) per trip. Uxin’s cross-regional transaction service provides used cars from more than 200 cities and can even cover the cost of transferring the vehicles. Wen said that the service can save the company at least half of the total transaction cost.
Finally, the process of used car purchasing has been transformed and has become standardized. Customers can access Cross-reginal transaction services, get after-sale services, and take advantage of one-stop financial services. Before the advent of e-commerce platforms, the business of used cars was based on person-to-person negotiation.“Now our clients can access vehicle valuations and quality reports from Uxin. The closer we work with Uxin, the better the reputation we can build in the region,” said Zhao Yonggang, who has cooperated with Uxin for 3 years.
The nationwide network has helped Yuanyi, the Xi’an insurance worker, to fulfill his dream. Finally, he drove his paralyzed wife to Qianling Mausoleum, a beautiful Tang Dynasty tomb site located 85 kilometers northwest of Xi’an. They made the trip with their newly purchased MPV.
(Top photo from UXIN)