Kicking Used Tires

How many new cars does it take to make a used-car market? For years, anyone in China wanting a set of wheels pretty much had to go to a new-car dealer. Why? Because as recently as a decade ago, Chinese bought just 300,000 new cars annually. And without a lot of new cars, it's hard to have many used ones.

But in 2005, Chinese consumers bought 3.1 million new cars and have purchased more than 1 million vehicles annually since 2002. That has led to a growing market for secondhand vehicles -- more than 1.25 million last year. Used cars "are much cheaper, and the condition is still very good," says 21-year-old Gong Jianmin, who expects to spend $12,000 for a five-year-old VW Jetta. "For me, that's a deal."

Used cars are poised to become a much bigger deal. In the U.S. and Europe, as many as three used cars are sold for every new one, so there's plenty of room for growth in China. And new regulations approved in October make it easier and less costly to transfer ownership of a car.

That has led a host of foreign auto companies to jump into the business. General Motors (GM ), VW, Audi, BMW, and Toyota Motor (TM ) all have authorized dealers to sell their cars used, which should boost trade-ins and increase consumer confidence. But the business isn't easy, particularly given buyer suspicions about secondhand cars and those who sell them. Just ask Meng Qingkai, manager of the used-car department at Beijing Dashihang Auto Sales Co. Although he says customers trust his company because it's an authorized Buick outlet, he allows that other shops "cheat consumers." China's market for secondhand vehicles may be nascent, but its reputation, at least, is apparently little different from the used-car business worldwide.

By Dexter Roberts

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