Used-Car Distribution Market in Japan: Key Research Findings 2019
Yano Research Institute (the President, Takashi Mizukoshi) carried out a survey on the domestic used-car distribution market, and found out the trends by major category (used-car retailing, used-car purchasing, auto auction (including bidding), and used-car exporting), trends of market players, and future outlook.
The domestic number of used-car sold in 2019 was estimated as 2,620 thousand units, with the average retail price 1,170 thousand yen.
There were two factors for the used-car retail market being brisk for 2019: Consumption tax hike started in October 2019 that led to last-minute surge in demand just before the tax hike until September; Flood damage caused by multiple typhoons during the period from summer to fall in 2019 which generated substitutional demand. Also, market penetration of next-generation vehicles has raised the unit price of existing vehicles. According to the research that has been carried out by Yano Research Institute from the past, the retail price of used cars has been on the rise in recent years, which is affected by the rising price of new cars exemplified by those of next-generation cars. Another factor for rise in used-car retail price is that more users possess their cars for longer period of time than before, increasing the rareness of late-model used cars.
Competition in the used-car retail market has been fiercer and fiercer, against the backdrop of enhancement of secondhand-vehicle business by auto dealers, and increasing number of companies from different industries entering the market, such as gas stations and vehicle repairing. Each market that comprises entire automobile distribution market such as the market of auto parts and equipment sales, vehicle leasing, and repairing, see almost no increase in the number of vehicles possessed by users, and see decreasing tendency of those users who are particular about specific taste in an automobile. After finding it difficult to secure profits from their main business, many companies from different industries have newly entered vehicle trading business. There is a need for the industry to build a system to secure stable profits by forming favorable long-term relationship with users.
Fiercer Competition Due to Increasing Market Entry
Major used-car dealers are focusing more on purchasing used cars directly from users. Armed with funds and brand power together with expertise and distribution channels accumulated through the history of their business, these major used-car dealers are able to offer higher prices to the sellers than the conventional automobile wholesale buyers. Meanwhile, conventional used-car trading business is a one-time-fee business model which almost automatically put up the vehicles on an auction as soon as they are procured, which makes relatively smaller profits than retail sales. Therefore, it is difficult for conventional automobile wholesale buyers to show higher price to those users about to sell their vehicles, making major used-car dealers to become superior in acquiring more users as well as the vehicles. This tendency has led conventional used-car wholesale buyers to start increasing the ratio of selling the vehicles (*1) to fellow traders rather than depending only on auto auctions. As the competition of used-car procurement becoming severer, the border between used-car traders and used-car wholesale purchaser is becoming vaguer.
In addition, auto dealers have created residual value payment (*2) which allows a user to pay for the automobile corresponding to the number of years he/she plans to use, after which the user has three options of what to do with that vehicle: 1) The user can buy another new car as a replacement, 2) the user can return the car, or 3) the user can pay for the rest of the years on the vehicle. Therefore, the payment makes late-model used cars easier to be traded-in, and urges users to buy new cars more frequently. Also, enhancement of shared used-car inventory services (*3) has been encouraging new market entry even by those repairing companies not familiar with vehicle procurement. This new entry by companies from different industries is making used-car retail market to be further competitive.
*1) Transaction of vehicles between used-car dealers and traders.
*2) Residual value payment allows car users to set the number of years the users use the vehicle, and the users are allowed to pay for the vehicle associated with the number of years to use. For user’s side, he/she can suppress cost to pay for the automobile (this is actually the car rental rather than purchase), while car dealers can make users switch to new cars more frequently. As users generally set three to five years for residual value payment, the payment increases the sales of new cars, while it also becomes a procurement method of late model used cars for car dealers to re-sell (retail), which is making the market of secondhand vehicles to be brisk.
*3) A shared used-car inventory service is a platform provided mainly by auto auction operators to trade vehicles among auction participants. For used-car traders it allows them to sell vehicles to other nationwide member companies while keeping them at their respective stores. More users have started using the service as a method to save labor and cost for auto auctions.
As long as used cars are originated from new car sales, the domestic used-car distribution market size for the future relies on the domestic size of new car sales. Meanwhile, the number of new cars sold is on the decline from the mid-to-large perspectives. Therefore, when considering that the automobiles exhibited at dealers can be counted as the dealers’ own registered vehicles, genuine demand for new cars by users is likely to be below what has been published.
While decrease in supply of secondhand vehicles cannot be avoided in the mid-to long run, there is a sign of diversification in export destinations and in how to use them. In the auto auction market, exporting demand continues occupying large market share by auction participants. Also, more used-car dealers have started utilizing their inventory of used cars for leasing and other subscription services, a new way to utilize used cars. Although the entire volume of used cars is on the decline in the mid to long term, they are also gathering attention as a new commercial item for the leasing market.
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