Business

Wheeling, dealing in China

SHANGHAI — Americans know well the stereotype of the used-car salesman. In China's burgeoning car culture, that stereotype is on steroids.

Those looking to sell their old set of wheels often end up in a city-center market where they are swarmed by thuggish middlemen known as "yellow cows" — the Chinese term for scalpers — and "car insects." Outfitted in black leather jackets and fake Louis Vuitton handbags stuffed with cash, these characters, cigarettes dangling from their lips, pretend to bid against each other but pay no more than a lowball price they've set in advance, industry insiders say.

"This is the closest you'll get to the Wild West," said Wei Jiang, a former executive with eBay who created an online auction that helps sellers get fair deals in China's virtually unregulated used-car market.

Though used-car sales lag far behind new-car sales in this country, the secondhand market already has a tarnished reputation. When Jiang announced to his family that he was launching his startup, 2dunet.com, they nearly disowned him. "Two Du" in Chinese means "second-time around."

"My relatives were like, we have this boy who was the darling of the family, he went to the best college, got a full scholarship to the U.S. and then became an executive of a multinational company," said Jiang, who still owns a home in Palo Alto, Calif. "And all of a sudden, I'm a used-car salesman."

He has his sights on a lucrative market, though.

Last year, consumers in China, now the world's largest auto market, bought 13.8 million new passenger cars. By comparison, 11.6 million new autos were sold in the United States. The used-car market will eventually account for two-thirds of all auto sales in China, up from about 23 percent now, according to the China Automobile Dealership Association. This year, the group estimates 4.2 million used cars will be sold, a tenth of the U.S. market.

Chinese consumers, unlike those in the United States, have few resources to help them understand the value of older vehicles. For instance, there is no Kelley Blue Book, which Americans use as a guide to the worth of used cars. So Jiang is also creating a database on car prices that can assist not only consumers but also insurance and loan companies trying to determine the value of older vehicles.

The government is aware of the problems of collusion among used-car brokers and is working to educate consumers to avoid traps, said Rong Shen, vice secretary general of the dealership association. As part of an awareness campaign, his association now publishes suggested values for used cars.

Those prices, though, aren't widely adopted by the industry, said Jiang, whose 5-year-old company has operations in five cities and franchised outlets in eight other locations.

For now, consumers who decide not to trade in their old vehicles when buying a new one — or sell it to a friend or family member — can face a daunting challenge on the used-car market.

On a recent morning at the state-owned Shanghai Used Car Trading Market — where some 200 used-car operations are located, including the headquarters for Jiang's company — scores of "yellow cows" took up positions. When a dark Ford sedan pulled up, eight quickly surrounded the car. A look of panic spread across the faces of the couple inside. The woman in the passenger seat frantically tried to wave them away.

"A lot of times, there are fistfights between the yellow cows," Jiang said.

"You can laugh at those yellow cows, but they are being entrepreneurial instead of being unemployed," said Duane Kuang, a partner at Shanghai-based Qiming Venture Partners, a backer of Jiang's business. "They say, 'Gee, this is an opaque market, and if I can find a way to get my hand on two or three used cars a week, I can make a living.' "

Some yellow cows actually now prefer the online auction process. In the past, Beijing independent used-car reseller Chen Wen Bing said he often was prevented from bidding on cars by organized gangs at auctions.

"They control the entire auction," he said. "They wouldn't allow me to offer a higher price."

Now, Chen said, his business has jumped 36 percent because he is able to competitively bid on more vehicles. The 30-year-old sells 90 cars a year, earning about $90,000 annually.

But other used-car salesmen resent the online auctions. Each time Jiang opens a new office, his employees are threatened, he said.

"Wei is trying to circumvent these people, and I am sure these people are trying to figure out ways to keep their businesses going," Kuang said. "It reflects the state of capitalism in China."

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