By Fang Yan and Norihiko Shirouzu
BEIJING (Reuters) - Used car sales in China grew faster than new car sales for a second straight year in 2012, and should account for half of all sales within seven years as the world's biggest autos market matures.
While new cars still outsold used vehicles by more than 3 to 1 last year, they are sputtering after a period of breakneck growth, and the potential for the pre-owned market to be the industry's growth engine is prompting foreign automakers to open more used-car outlets.
A key target for them are buyers like Jiang Meng, a 32-year-old office worker in the southeastern city of Guangzhou, who this month went shopping for a sport utility vehicle, and hadn't considered a second-hand car until she came across a used car dealer run by Nissan Motor Co's <7201.T> local joint venture.
"I wanted an SUV, but I wasn't sure of getting a used one until I stepped into the store. There are so many models and they offer a warranty," said Jiang, who traded in her 2-year-old Nissan Tiida sedan for a 4-year old silver Qashqai. The deal cost her 25,000 yuan ($4,000). A new Qashqai is priced at around 189,000 yuan.
"The car was very clean inside and outside and it drives very well. Many of my friends thought it's new," she said.
Still in its infancy, the loosely regulated used car market is dominated by thousands of domestic traders. Deals are often struck at auto fairs in stadium-sized halls or open-air markets where car quality can be questionable and pricing opaque.
Nevertheless, in a first survey of the used car market by Nielsen and the China Association of Automobile Manufacturers, almost a third of those planning to buy a car said they would consider a pre-owned vehicle.
Foreign carmakers paid little attention to the pre-owned market as they sought to win market share by selling new models to China's newly wealthy. Also, in a market where annual sales were just 3.1 million as recently as 2005, there weren't many used cars available.
That's now changing as cars bought during China's auto boom are beginning to age, and as rising incomes draw drivers into buying a second, third or even fourth car.
Just 4.8 million used cars were sold last year, while 15.5 million new cars rolled out of showrooms, according to data from the China Automobile Dealers Association (CADA), an official industry group that tracks used car sales. But the used car market's growth of almost 11 percent outpaced new car sales growth of 7.1 percent.
Over the next three years, used car deals are expected to more than double to 10 million, and catch up with new car sales, at around 35 million, by 2020, CADA deputy secretary general Shen Rong has forecast.
In the United States, the used car market is around four times the size of the new car market in sales volumes.
GRAPHIC: China car sales http://r.reuters.com/tyt55t
To tap that growth, foreign automakers are expanding their used car sales operations, which consumers say is bringing more security to what has been a decidedly grey market. Foreign brands tend to hold their resale value better than local models.
"Our used car volume has been picking up steadily even though it's still small. We're well prepared for the explosive growth in the coming years," said Gao Jie, deputy manager for the used car business at Nissan's China venture.
Nissan's used car centre in Beijing last year shifted a record 10,000 vehicles, 20 times the volume it did in 2006 when it opened for business. The company is adding two more stores, bringing its total to five.
The growth market has attracted AutoTrader Group
Local tycoons are getting into the business, too, with Chen Xiao, ex-chairman of GOME Electrical Appliances, and others opening a 26,000 square meter used car supermall, Car King, with an eye on further expansion.
The used car business is seen as a crucial revenue stream for foreign automakers as new car sales have slowed to single-digit growth after Beijing scrapped incentives for consumers at the end of 2010.
A high-growth used car market may be less welcome for indigenous brands such as BYD and Geely Automobile Holdings Ltd <0175.HK>, which are already being squeezed by cheaper models made by foreign-local joint ventures.
"Those joint venture brands, such as Sail, are grabbing market share from Geely and Chery
At the Shanghai-based Car King store, most of the used cars on offer are foreign marques, with warranty, 24-hour emergency service and German maintenance technicians on hand. Buyers can also return the car within a week.
For the foreign automakers, the used car business can also cultivate brand loyalty, win new customers and drive up new car sales.
"A used car is a good option if you can get it at a professional dealer outlet. When I'm ready for a BMW, I'd go for a second-hand as well," said Jiang Meng.
(Editing by Kazunori Takada and Ian Geoghegan)