Study on the second hand cars market

Details

Identification: ISBN 978-92-79-45691-6
Publication date: 1 October 2014
Author: Directorate-General for Justice and Consumers

Description

The Second Hand Cars market has had the lowest overall score among the goods markets in the 8th Consumer Markets Scoreboard (2012), which was the case also in 2010 and 2011. The market is affected by asymmetric information, which explains its particularly low scores on trust (lowest among goods markets for three consecutive years); it also registered the worst performance of all goods markets on problems experienced by consumers and on comparability.

This is why the European Commission conducted a study on the functioning of the market for second hand cars from a consumer perspective in the European Union.

The study covered purchases of second-hand cars by consumers from franchise dealers, independent dealers and auctions (private sales of second-hand cars between individuals were not included). It focused on dealers’ practices and compliance with the existing regulatory framework for selling second-hand cars, consumers’ ability to make informed choices with the information they receive prior to purchase and at the point of sale, as well as problems experienced by consumers. Particular attention was given to cross-border aspects of this market.

Key findings

High proportion of consumers experienced problems and significant detriment

Two-fifths (41%) of all consumer respondents reported experiencing at least one problem within a year of buying their second hand car. The proportion was highest for those living in the new Member States, the EU13 (60% vs. 37% in the old Member States, the EU15), buying at auctions (59%) or from abroad (57%), aged 18-34 or with low income (50%).
Two-fifths of all problems occurred within 1 month of car purchase.
Only 27% of respondents’ biggest problem was covered by any guarantee.
The consumer detriment for problems that occurred within 1 year of purchase was estimated between 1.9 and 4.1€ billion; it was highest in Eastern and Southern European countries.
The average problem took the respondent 23 hours to address and cost €518.
One in five respondents who complained to the trader did not receive any means in order to solve their problem. Not having a guarantee makes it much less likely to receive a refund or repair (3% vs. 35%).
Consumer satisfaction about the complaint handling was low (6 out of 10).
Unfair commercial practices were experienced by a significant 25% of consumer respondents; this was considerably higher in the EU13 (44%).

Deficiencies in the provision of information to consumers

Between 21 and 27% of survey respondents did not receive information on CO2 emissions, consumer rights to a legal guarantee, maintenance costs, safety/security reputation of the car, car mileage checks to verify odometer accuracy and accident history. A further 12 to 19% were unsure whether or not they had received this information.
Only 5% of traders spontaneously provided information on consumer rights to a legal guarantee (mystery shopping).
A commercial guarantee was offered to respondents by 62% of traders overall, but varied considerably: from as high as 75% in franchise dealerships to as low as 42% in auction houses; it was also much less common in the EU13 (41%) than the EU15 (66%).
Less than a quarter of dealers conveyed to mystery shoppers that the commercial guarantee’s coverage was in addition to the consumer’s rights to a legal guarantee.

Less favourable conditions in the EU13 and reliance on imports from the EU15

EU13 consumers enjoy a lesser availability of franchised dealers than in the EU15. Whereas 46% of EU15 respondents bought their latest second-hand car from franchise dealers, such purchases were notably lower in the EU13 (23%) and in smaller markets (Cyprus 19%, Malta 12%).
EU13 consumers buy older and higher mileage (7.1 years, 122,000km vs. 6.1 years, 80,000km in EU15) second hand cars, which can have a negative impact on their safety. Cars purchased from abroad had by far the highest usage pre-purchase (16,500km/yr.).
When it comes to cross border trade, there is a significant flow of second hand cars from EU15 to EU13 and 42% of all imported cars come from Germany.
Once correcting for differing income levels per country, the average price of a second hand car was higher in the EU13 than in the EU15.

Factors influencing the purchasing decision

Internet car portals were rated highly for a number of characteristics and more than 50% of respondents purchased their car via a portal. They were rated much lower for the transparency of information on the business model of such portals and the coverage of cars from abroad.
Trader’s affiliation with a quality label / code of conduct had a low influence on the consumer’s choice of trader (for one in three respondents only and mostly for franchise dealerships).
Membership of a trade association had even less impact, particularly for independent dealerships. This presents an obstacle to those independent dealers who try to replicate the practices of franchise dealerships in order to increase consumer trust.

Low and varying trust in traders

Overall, consumer trust was rather low and varied across the different sales channels, from 7.3 out of 10 for franchised dealers to 6.4 for independent dealers and only 4.6 for auctions.

Low market-specific consumer knowledge

Only a minority of respondents felt that they had a lot of knowledge about cars (32%) and the information traders were obliged to present to them (29%).
Important socio-demographic differences were observed (lower knowledge among youth, women, consumers with low income and lower education).

The study’s recommendations stress the need for better enforcement of existing legislation by Member States, to ensure that dealers provide transparent and truthful information to consumers and that they do not omit important aspects related to the characteristics of the second hand cars for sale. Both findings and recommendations can be particularly useful for Member States in order to support their policy initiatives (e.g. awareness raising campaigns on guarantees, more vigilant enforcement in relation to information provision, measures to prevent odometer fraud). The proposed remedies to improve consumer conditions are addressed to a range of stakeholders such as traders and their associations, automobile clubs, consumer organisations and consumers themselves.