For every 1 new car sold annually in USA, 10 used cars are sold. In Germany, this ratio is roughly 6x, and Mexico 4.7x. Surprisingly across Southeast Asia, only 1 used car is sold for every 1 new car. Why is this the case? Is something fundamentally broken in our market? Below we attempt to answer these questions from a practitioners’ perspective, pulling together the team’s decades of collective experience in the automotive sector. 

1. Supply: Every New Car eventually becomes a Used Car

A fundamental driver of the used car market is the growth in new car sales. Other than Malaysia and Thailand (arguably the most mature automotive markets in ASEAN), the region remains severely under-penetrated in terms of vehicle ownership. The historical factors for this shortfall are typically lower per capita income and inadequate transportation infrastructure.

Source: https://data.aseanstats.org/

Over the past decade, and in line with rapid economic growth, we have observed a boom in new car sales, particularly in countries like Philippines and Vietnam. Case in point, annual new car sales in Philippines grew +27% in 2023 and is expected to grow by a further +10% in 2024 (albeit from a low base). These new cars eventually enter the used car market as they are traded in when owners upgrade to newer models. 

As new car sales continue to grow across Southeast Asia, this results in a corresponding increase in the supply of used cars, providing a foundation for the used car market to expand in the coming years.

2. Demand for Used Cars Today: Resilient and Counter-Cyclical

The demand for used cars in Southeast Asia is particularly resilient and often counter-cyclical, meaning that demand remains strong even during economic slowdowns. Several key factors contribute to this:

1. Down-trading during Economic Slowdowns: During periods of economic uncertainty or slowdown, consumers often shift toward more affordable options, leading to an increase in demand for used cars. Additionally, repossession rates tend to rise, increasing the supply of used cars, while price-sensitive consumers seek out more affordable vehicles. This creates a natural level of demand for pre-owned vehicles.
2. Higher Layoffs and Increased Demand for Ride-Hailing: An interesting trend observed across Southeast Asia in 2021-2022 was the rise of ride-hailing services (fuelled by the likes of Grab, Gojek, etc.). During periods of mass layoffs, many turned to ride-hailing as a source of income, and thus drove up demand for used cars in the process.
3. Slowdown in New Car Supply: In certain years, such as 2022-2023 in Philippines, the supply of new cars slowed due to manufacturing delays or supply chain disruptions. As a result, many consumers who would typically buy new vehicles turned to the used car market, further boosting demand for pre-owned cars.

These factors collectively support experts’ current forecast of mid-single-digit growth annually for used car demand across Southeast Asia moving forward. While these factors highlight the state of demand today, they do not address the reason for the very-low 1:1 used to new car sales ratio in our region. 

3. Trust: The Key Bottleneck for Used Car Demand

1. Despite the positive trends, there is a significant barrier preventing the used car market from reaching its full potential: TRUST. The lack of transparency in pricing and inspection quality are some of the main challenges inhibiting the growth of the used-to-new car sales ratio. 
2. This lack of trust is not only present at the consumer level but also extends throughout the entire ecosystem, which includes banks, insurance companies, dealers, and other stakeholders. A lack of transparency in pricing, financing options, and the quality of inspections deter consumers from fully embracing the used car market.
3. This bottleneck is extremely visible when assessing the natural progression of consumers’ mobility choices as personal income grows. For most consumers across the globe, the mobility journey often follows this sequence: Two-Wheelers (2W) → Used Four-Wheelers (4W) → New Four-Wheelers (4W)
4. However, the current 1x ratio between used and new car sales suggests a bottleneck in this mobility flow. In Southeast Asia, many consumers are bypassing the used car market entirely, opting instead to save for a new car after their 2W. In other words, consumers are staying with their 2W vehicles longer and skipping over the used car segment. This trend has worrying consequences for road safety and overall economic productivity for the country.

This is where companies like Mobee are stepping in. By focusing on building trust at every level of the used car ecosystem, Mobee aims to remove the friction and opacity that currently exist in the market. The goal is to create a transparent system where buyers and sellers can confidently engage in transactions, thereby truly “unlocking” the used car market. If successful, we envision a future where demand for used vehicles are an order of magnitude of stronger (perhaps 3-4x the size of the market today), significantly surpassing the mid-single-digit growth rate that experts are currently predicting.

Written by Jonathan Yeoh

Chief Financial Officer, Mobee Group