- BYD and other Chinese automakers are being questioned by Chinese regulators regarding the influx of “zero-mileage” cars on the used market.
- Regulators believe that automakers may be using a loophole to sell new cars to dealers in order to bolster sales figures.
- These cars are sold for lower prices as used, after dealers take advantage of EV subsidies.
Picture this: you’re in the market for a slightly used car and head to your local used car dealer only to find the lot lined with shiny new EVs. You take a look at the window sticker and see that the car has few, if any, miles on the odometer. When you inspect it a bit closer, you see that the seats still have plastic on them and it even has that new car smell when you open the door. What gives—you are at the used lot, right?
Meet China’s newest automotive industry scandal: the zero-mile used car.
Photo by: BYD
Now, I know that you’re thinking this sounds weird. Surely we can’t be witnessing the inception of Schrodinger’s cars. Even China’s government smells something fishy going on, because it’s summoned automakers like BYD and Dongfeng to discuss exactly what’s going on and get to the bottom of how so many of its cars are being found on the used market, according to a new report from Reuters. No miles, no owners, no stories—just paperwork and a faint whiff of what could be subsidy fraud at a steep discount.
Here’s how it allegedly works.
An automaker wants to pump up some monthly sales figures so they “sell” the car (at least on paper) to a dealer or other partner. They slap a registration plant on the car, take advantage of whatever government credits apply and quietly funnel the car into the used market where it gets listed as preowned even though it’s brand spanking new. Automakers get higher sales figures, consumers get cheaper cars. Seems like a win-win, no?
It doesn’t seem to be illegal, at least not on the surface. But someone is paying out of pocket for these cars to be cheaper and any abuse of subsidies have Chinese regulators on the hunt for possible malfeasance. Now the Ministry of Commerce want to know what’s going on and potentially put a stop to anything that might not be above board.
Wei Jianjun, CEO of Great Wall Motors, spoke about this problem last week. He compared the moves by the oversaturated Chinese EV industry to Evergrande Group, a debt-laden developer in China’s property market.
“Now, Evergrande in the automobile industry already exists, but it has not collapsed,” said Wei in an interview with Sina Finance.
According to Wei, as many as 4,000 car dealers are currently in cahoots with the zero-mile trickery—many of which have cars for sale on online platforms. It’s alleged that these sales figures are bolstering market dominance for some big players in China’s EV market. The Ministry hasn’t explicitly named any conspirators, but it did invite BYD, Dongfeng, the China Automobile Dealers Association, the China Association of Automobile Manufacturers and some online sales platforms to its inquiry meeting, according to a person familiar with the issue who spoke with Reuters.
The bottom line is this: this isn’t expected to be just some sticker-swapping and taking a bit of a hit on profit margin. It’s a symptom of a car market that’s been stretched thin thanks to years of turbocharging subsidies mixed with fierce competition. Automakers have been pressured to have constant growth and now that the race to the bottom has begun.
Now the system is spitting out zero-mileage used cars like some sort of discount grocery store peddling overstock. That might be good news for consumers looking to save a few bucks, but it speaks to a larger problem surrounding market sustainability.
