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Cash-burning Chinese second-hand car trader Chehaoduo turns profitable and poised to offer vehicles with better quality

The company will expect the fourth quarter in 2019 to be profitable.

Photo: Shutterstock.com

Beijing-based Chehaoduo Group, best known for its second-hand car platform Guazi.com, has just turned profitable in November, an achievement that’s hard to come by in an overall waning Chinese vehicle market, its founder and CEO Yang Haoyong told local tech media 36Kr during a media event. The company also expects its whole fourth quarter in 2019 to be profitable.

Yang also shared Chehaoduo’s strategy for future development during the event. The online second-hand car trader will shift its focus from stressing cheapness to quality. Specifically, it will continue to invest in technologies to enhance the evaluation accuracy of the used cars before their trading.

In terms of after-sales services, the company will also start to introduce new policies like 7 days no hassle returns and 30 days warranty.

Chehaoduo said the funds for the shifting-to-quality strategy would come from the saved cost resulting from its operational efficiency. For example, the company will cut back on investing into its brick-and-mortar stores and start to showcase models with lower price online. It will also replace the door-to-door car condition detection with in-store checkups.

Launched in 2015, the Beijing-based startup operates two main sites—peer-to-peer online used vehicles trading marketplace Guazi.com, and new sedans retail platform Maodou. It has landed a USD 1.5 billion investment from SoftBank’s Vision Fund in March and thus secured a value of above USD 9 billion, almost ten times the market cap of its main rival, Nasdaq-listed Uxin, which stood at about USD 910 million as of Thursday.

China has seen an increase in its used-car sector over 2019 while the growth is slower. Transactions of used cars have reached over 13 million units during the past 11 months, up only 5% year-on-year, according to data from the China Automobile Dealers Association.

Major Chinese online second-hand car dealers including Guazi, Uxin, and Renrenche have burnt a large amount of money on ads to promote brand recognition and cultivate potential users. Advertising-related expenditures in this industry grew to RMB 1.2 billion (USD 171.3 million) in 2016 and more than RMB 5 billion in 2017, reported by local media Tencent Shenwang citing data from market research firm iResearch.

Chehaoduo, which owns 6 – 8% of the market, currently has an abundant cashflow of over RMB 5 billion (USD 714.1 million) on its balance sheet, Yang said.

36Kr is KrASIA’s parent company.