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Analysis

The Chinese pre-owned car industry: a victim of its own excesses?

Jul 12, 2018 by A. Alfaro
The Chinese pre-owned car industry: a victim of its own excesses?

“A good advertisement is one which sells the product without drawing attention to itself” - David Ogilvy

Despite guzzling millions in advertisements and marketing gimmicks, a profitable future still seems to allude the used-car market by miles.

The reason? Unfortunately, attention-seeking advertisements have become its Achilles heel, threatening the whole sector towards an inevitable stall.

Currently, there are three main competitors in the fray: Uxin, Guazi and Renrenche.

Uxin has achieved some notoriety in the last months because of its aggressive ad campaign featuring Hollywood superstar Leonardo di Caprio.

Thanks to a cooperation agreement with Chinese Central Television (CCTV), these commercials were broadcast during the football World Cup, with a frequency that has been described by some Chinese spectators as "brainwashing".

Similarly, Uxin spent USD 300 million in marketing last year, more than its total revenue. In the same year, Renrenche spent USD 120 million in marketing. Guazi invested USD 30 million in hiring Korean singers and actors as its brand ambassadors.

However, these big investments have not been fruitful. None of the three platforms is profitable and they have been bleeding money since their inception.

According to its IPO prospectus, Uxin lost USD 72 million last year. Yang Haochong, Guazi's CEO, admitted that it will be unlikely to become profitable in the short term. The money spent on marketing has lacked discernment and a real strategy, market watchers believe, while a profitable business model is yet to be found.

Unfortunately, instead of addressing the malady, they have only stoked it further, pumping in millions in advertising.

True, the aggressive advertising model has made these platforms popular among the general public. But how many of these people are actually willing to buy a second-hand car?

The targeting does not seem to have been precise enough.

There are two main consumer groups in this market. The first comprises fresh graduates who just want to buy a cheap car, no matter how old. The other is a more car-savvy group of people who try to buy high-end cars at the minimum price.

If advertising had been better directed at these two groups, a better return on the large investment would be possible.

There are other odds stacked up against these companies as well.

As Liu Shuo, from the digital marketing company Social Touch, explains, “Chinese culture and Western culture are different, Chinese either buy new cars and houses or they don't buy at all.”

Despite the millions these companies have spent, their advertisements are hardly directed at bringing about any attitude change.

"Marketing should focus on solving this issue", says Liu. There has to be a culture in which buying a second-hand car is not a last resource because of not having enough money, it should become just another option, he further explains.

Marketing has entered a new phase in which traditional advertising strategies are no longer effective. Companies should adopt more sophisticated and subtle tactics such as content deepening, cooperation with other platforms and creating a brand culture. Rigid barriers from traditional advertising must be torn down and companies should create a complicity with consumers.

As Social Touch COO, Wu Xuan, explains, “Companies should try to build a brand, a reputation and a name for themselves, not only in the automobile online world but also in more general sites such as Zhihu (a Chinese site similar to Yahoo Answers).”

Agrees Zhang Rui, CEO of Social Touch. “I might be thinking to buy a Mini Cooper as a treat for myself for my birthday, platforms should be able to find me across different scenarios, they should try to attract potential customers in different settings.”

With the coming in of social media, consumers are no longer just the main source of revenue for companies. They can also become the brand's best promoters and ambassadors, thanks to social media.

The consumer's social value can become one of the best bases for the company’s innovation. The era of brainwashing commercials is already gone. Now consumers take the initiative and create a reputation for the company.

A. Alfaro

A. Alfaro is a Beijing-based freelance reporter. He focuses on China's politics, culture and society. He can be reached at varofaro@gmail.com. 

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