Gasgoo Munich- From January through May, domestic retail sales of new cars totaled 8.148 million units—plunging more than 20% from a year earlier. Over the same span, used-car transactions climbed 2.3% to 8.095 million units. The gap has narrowed to roughly 50,000 vehicles, marking the first time the two markets have reached virtual parity.
This shift raises two critical questions: Why are new and used cars finding equilibrium at this specific moment? And with demand for new vehicles flagging, is the used-car market emerging as a crucial pillar supporting the broader auto sector?
New Car Contraction Meets Policy Easing, Opening Room for Used-Car Growth
The most immediate driver of this parity is the simultaneous contraction of the new-car market and the steady expansion of the used-car sector. Their divergent trajectories have effectively erased the scale gap.
First, continued deregulation at the policy level has cleared the way for used-car circulation.
In March 2026, the Ministry of Public Security announced 10 new traffic-management measures taking effect June 1 nationwide. Notably, the registration of used passenger vehicles now operates on a "one-certificate" system. Applicants transferring ownership outside their place of household registration need only provide an ID card, eliminating the need for temporary residence permits. With vehicle files now transferred electronically, administrative barriers to cross-province circulation have dropped significantly.
Image source: Huaban Website
At the same time, trade-in subsidies continue to stimulate replacement demand. Under detailed rules released by eight government departments, consumers scrapping old vehicles to buy new-energy passenger cars receive a subsidy equal to 12% of the new car's price, capped at 20,000 yuan; simple replacement updates offer a maximum subsidy of 15,000 yuan. While these measures boost new-car sales, they also accelerate the flow of older vehicles into the used market.
Furthermore, the purchase tax policy for new-energy vehicles shifted from exemption to a 50% levy in 2026, raising the cost of new cars. In contrast, used new-energy vehicles remain tax-exempt, giving them a distinct price edge. Cui Dongshu, secretary-general of the China Passenger Car Association (CPCA), has noted that the reinstatement of purchase taxes on new vehicles has increased buying costs, while tax exemptions for used models highlight their value—driving counter-cyclical growth in the used-car market.
The Ministry of Finance and the State Taxation Administration have also confirmed that the reduced value-added tax (VAT) on used-car sales will remain in effect. The rate stays at 0.5%—far below the statutory 3%—with the incentive extended through the end of 2027.
Relevant authorities have explicitly called for "promoting innovation across the automotive circulation chain and facilitating used-car trade." The dual effect of deregulation and fiscal adjustment has lowered circulation costs and expanded the market's reach, creating the institutional conditions needed for transaction volume to grow.
Second, the price war on new vehicles is another major variable shaping the used-car market. Throughout 2025, 177 passenger car models saw price cuts, with new-energy vehicles dropping 10.8% and internal combustion engine (ICE) vehicles falling 8.9%. In the first five months of 2026 alone, another 82 models saw reductions, with cuts widening to 12.5% for new-energy vehicles and 14.6% for ICE models.
Zhang Hong, deputy secretary-general of the China Automobile Dealers Association (CADA), analyzed that the price war has pushed the transaction price of some new cars below the acquisition price of used vehicles, creating an inversion between buying and selling prices. Moreover, falling new-car prices have accelerated the depreciation of older models, leaving dealers who acquired inventory at high costs facing significant risks of devaluation losses.
Image source: Huaban Website
Persistently declining new-car prices have lowered the valuation benchmark for used vehicles, with many markets seeing transaction prices for new cars dip below the acquisition cost of nearly-new used cars. At the same time, consumers are adopting a wait-and-see approach, fearing new cars could drop again soon. As a result, some demand has shifted toward used cars, whose prices are relatively more stable.
In terms of vehicle age, the quality of supply is also improving. Vehicles under three years old now account for 30% of the market, up 3.1 percentage points from last year. A joint report by the China Association of Automobile Manufacturers (CAAM) and Hejun Consulting shows the average age of ICE passenger cars is 8.2 years, with those over seven years making up nearly 60%. In contrast, the average age of new-energy passenger cars is just 1.8 years, with vehicles aged one to three years comprising a staggering 90%.
An influx of low-mileage, high-quality nearly-new cars has boosted consumer acceptance of used vehicles, providing the supply-side support needed to expand transaction volume.
New-Energy Vehicles Accelerate Entry, Rewriting the Logic of the Used-Car Market
Beyond policy and pricing factors, the accelerated entry of new-energy vehicles into the used market represents a deeper structural force.
From January to May, cumulative sales of new new-energy vehicles reached 5.802 million units, up 3.5% year-on-year and capturing 47.5% of the new-car market. Over the same period, transactions of used new-energy vehicles jumped 25.7% to 685,400 units, while used ICE vehicles faced pressure and dipped slightly. Used new-energy vehicles are entering the circulation market at a pace far outstripping the industry average, reshaping the supply structure of the used-car sector.
Zhang Hong points out that new-energy vehicles purchased two to four years ago are now entering the used market in droves, dragging the average transaction age down to roughly 3.4 years, with a significant rise in nearly-new units aged one to three. At the same time, because new-energy vehicles depreciate quickly and battery residual value is hard to assess, dealers tend to adopt a "fast-in, fast-out" strategy to avoid long-term holding. This has accelerated inventory turnover in the used market, making price suppression during acquisition more common.
Data from the China Automobile Dealers Association shows the replacement cycle for traditional ICE vehicles is roughly six to eight years, compared to just three to five years for new-energy vehicles. 2025 transaction data bears this out: the average age of used ICE cars was 8.6 years, while used new-energy cars averaged just 3.4 years. That gap of more than double highlights the accelerated consumption rhythm of new-energy vehicles.
The shortened replacement cycle for new-energy vehicles stems partly from their significantly faster technological iteration compared to ICE vehicles. Rapid upgrades in battery, motor, and smart driving systems mean models launched two or three years ago often lag in range and computing power, prompting owners to upgrade early under trade-in incentives. Additionally, the primary buyer demographic for new-energy vehicles is under 35, and their pursuit of the latest tech experiences further shortens ownership duration.
Moreover, declining resale rates are another key factor accelerating this process.
A report on China's auto resale rates for the first half of 2026, released by the China Automobile Dealers Association and Jingzhengu, shows the three-year average resale rate for ICE vehicles at 46.07%, while new-energy vehicles stood at 44.8%. Historically, ICE vehicles hit 67.6% in 2022, and new-energy vehicles averaged 54.7% in 2023. Both categories have seen a stepped decline in residual value over consecutive years.
Zhang Hong further notes that rapid technological iteration and falling resale rates mean new-energy vehicles older than six years have extremely low residual value. Dealers are generally unwilling to acquire them, limiting their supply in the used market. Conversely, supply remains relatively stable for top-tier brands and models with higher retention. For trailing brands facing rapid model updates or discontinuation, fast depreciation and circulation difficulties are gradually reducing supply.
At the same time, he suggests that as technological iteration slows, standards for assessing battery degradation improve, and pricing rules become more standardized, the "fast-moving consumer goods" style of depreciation for new-energy vehicles will gradually flatten. Models with higher retention rates may eventually revert to the ownership logic of "durable consumer goods."
Continuously declining resale rates mean the longer a vehicle is held, the greater the loss in residual value. This objectively pushes more owners to dispose of their vehicles before further value erosion, accelerating the flow of new-energy vehicles into the used market. Increased supply then pushes prices down further—a self-reinforcing loop that deepens the impact of new-energy vehicles on both supply and demand in the used-car market.
The emergence of a 1:1 ratio is precisely this cycle reflected in the data.
Behind the Expansion in Transaction Volume, Industry Shakeup and the Search for Growth Go Hand in Hand
However, the expansion in transaction volume has not translated into industry-wide prosperity.
In the first quarter of 2026, used-car transactions reached 4.822 million units, up 4.66% year-on-year, yet the average transaction price fell from approximately 65,800 yuan to 64,900 yuan. Inventory cycles are also lengthening. According to China Automobile Dealers Association data, the average inventory period for used cars has stretched to 52 days—12 days longer than a year ago—with mid-to-high-end vehicles priced over 200,000 yuan sitting for as long as 58 days. This has directly increased capital costs and depreciation risks for dealers, further squeezing already thin profit margins.
Zhang Hong notes that the average inventory cycle for used cars has stretched from a normal 20 days to 45 to 60 days or longer. Severe backlogs of slower-selling models have led to significant losses from depreciation and increased costs for storage and capital, severely eroding dealer profits.
Survey data from the China Automobile Dealers Association reveals that the loss ratio for used-car dealers climbed to 73.6% in the first half of 2025. The Used Car Manager Index stood at just 43.5% in June 2026, remaining below the boom-bust line for consecutive months. The association forecasts the index to drop further to 42.7% in July, indicating continued decline in market sentiment.
"Industry scale is expanding, but practitioners are under pressure"—this contradiction captures the current reality of the sector.
Zhang Hong attributes the widening losses to a combination of factors:
First, as traffic concentrates on online platforms, customer acquisition costs for dealers have climbed, while average profit per transaction has been severely diluted—some dealers find their profits barely cover advertising fees. Second, increasing market transparency makes it easy for consumers to compare prices, rendering the traditional "buy low, sell high" model unsustainable. The industry's transition from earning margins to charging service fees is incomplete, and many lack differentiated competitiveness. Third, some dealers lack precise pricing and inventory selection skills, blindly hoarding high-risk models or overpaying for inventory due to market sentiment, leading to heavy losses. Additionally, insufficient inspection capabilities or integrity issues have sparked disputes, increasing hidden costs and damaging market reputation and conversion rates.
Against this backdrop of industry-wide pressure, a divergence among market players is accelerating.
On one hand, a large number of small and medium dealers are exiting the market. The total number of used-car stores nationwide has dropped from 180,000 in 2025 to 150,000, with over 30,000 stores closing in six months—the vast majority being individual operators and small-scale dealers.
Image source: CARtech
On the other hand, leading enterprises are seizing this window to accelerate expansion. For example, CARtech has scaled up by opening franchising, accumulating over 300 direct and franchised stores, with monthly sales per store jumping from 100 units to between 300 and 500.
Leading online platforms are also capturing more market share. For instance, the cross-city transaction ratio on Guazi Used Cars is approaching 90%, far exceeding the national average of 32.3%. As small dealers close in batches while top companies and platforms expand, market share is shifting from fragmentation to concentration.
This divergence in the used-car market is intrinsically linked to shifts in the profit structure of new-car dealerships. Data from the China Automobile Dealers Association shows the contribution of new-car sales to gross profit fell from 19.7% in 2022 to -25.5% in 2025. As new-car sales have turned from a profit source into a loss center, aftermarket businesses—maintenance, used-car transactions, and auto finance—have become the core pillar supporting dealer profits.
However, Lang Xuehong, deputy secretary-general of the China Automobile Dealers Association, points out that while used-car sales at Chinese dealer groups have reached 23%—a significant rise from the past—there remains a gap compared to the mature U.S. market, where authorized new-car dealers contribute about one-third of used-car transactions. This suggests considerable room for growth for Chinese dealers in the used-car sector.
Image source: Huaban Website
The low market share of dealers in used cars stems from long-standing business inertia. Most dealerships treat their used-car departments as auxiliary operations, lacking independent procurement, pricing, and retail capabilities, let alone branded operations or chain expansion. These very shortcomings have opened market space for used-car chains like CARtech and online platforms like Guazi.
At the same time, more automakers are recognizing the strategic value of the used-car business. In June 2026, Guazi Used Cars formed a strategic partnership with BAIC Penglong, the exclusive handler of BAIC Group's official certified used cars. BAIC Penglong has laid out 105 dealerships offline and secures 14,000 stable trade-in vehicles annually, establishing a complete business chain covering dealerships, retail centers, and auction platforms.
Among new-energy automakers, BYD launched its "Jingcheng Certified Used Car" system long ago, offering a lifetime warranty on the battery, motor, and electronic control system for certified vehicles—making it one of the first in China to do so. NIO also launched its official certified used-car program, which subjects vehicles to 286 specialized inspections to rule out accidents, flood damage, and fire damage. By using original parts for refurbishment and ensuring full data traceability, NIO aims to build user trust in used electric vehicles.
These moves indicate that automakers have long been aware of the strategic importance of used-car operations and full lifecycle value management, with some having laid the groundwork for years. Whether traditional automakers or new forces, all are building their used-car operational ecosystems in their own ways.
Conclusion:
Achieving a 1:1 ratio has propelled the used-car market from the periphery to the mainstream of automotive consumption. The expansion in market volume demonstrates that used cars are gaining acceptance among a broader range of consumers.
Yet behind the sheer volume lies a deeper question: With new-car price cuts continuously squeezing profit margins, resale rate systems still unstable, and vast numbers of small dealers struggling on the break-even line, what will sustain the industry's growth in the next phase?
The larger the scale, the more these issues cannot be ignored. To bring this market to true maturity, it will take far more than just rising transaction numbers.
