There was a time when Patrick Chou was swimming in cash.
Customers arrived at his Audi car dealership with bags of money. They dropped it on the table and posed for photographs, entire families smiling proudly next to their shiny new luxury sedans. Then they then drove off, leaving Mr. Chou, who opened one of Audi's first car dealerships in China in 2002, to count millions of Chinese yuan in small bills.
'It was hard work counting all that money,' he says, chuckling. 'No one had credit cards back then, and there was no financing, so they had to pay with cash.'
Mr. Chou's business is still growing, but piles of cash are no longer falling into his lap. For the first time, Mr. Chou expects sales at some of his showrooms to decline this year, the result of slower overall growth, heightened competition pressuring margins, and the efforts of local governments to fight pollution by restricting new car registrations. That leaves Mr. Chou looking for ways to rev up China's next automotive growth markets: used-car sales and leasing.
In the last five years, 60 million new cars rolled onto the streets in China. Now, some are starting to come back on the market as used vehicles. As that happens, Mr. Chou finds himself on the front lines of a battle to entice car owners to bring their vehicles back to the dealerships rather than sell them on China's popular used-car bazaars or through other private channels. Mr. Chou is one of 290 Audi dealers in China authorized by the Ingolstadt, Germany-based car maker to refurbish and resell used Audis.
'We are ramping up the used-car business,' said Rupert Stadler, Audi's chief executive, on the sidelines of the Beijing auto show this week. 'Cars that would normally have been sold to family members are increasingly being sold back to dealers.'
Developing new revenue streams from used-car sales, financing and after-sales services parts and repairs in China is so important now that BMW AG put Karsten Engel, an after-sales expert, in charge of its China business last year. Mr. Engel had spent many years in Asia in various leadership positions with BMW. He once worked as CEO of A.T. U Auto-Teile Unger GmbH & Co., Germany's leading auto-parts seller, and more recently ran BMW's group after-sales business and distribution.
'There are 1.4 million BMWs in the market in China and half of them are two years old,' he said in an interview. 'This is potentially a big source of profit and turnover.'
The growth in used-car sales can be seen in Mr. Chou's business, which he launched in the 1990s after he decided to leave Germany and 'pursue an extraordinary opportunity' in the country his parents left behind two decades earlier. He now operates a network of 23 German-style full-service dealerships and has partnerships with Audi, sports car maker Porsche, Volkswagen and Mercedes-Benz. In 1998, he created a company called BetterLife China Investment Co., which generated 1.1 billion renminbi ($180 million) in revenue through the sale of 18,000 new cars last year, of which 10,000 were Audis.
The dealership in Tianjin, a city about a two-hour drive from Beijing with a population of 12 million, sold 2,500 cars last year, up 19% from the previous year. Four years ago, his Tianjin dealership sold 40 used cars, but that number grew to 500 used cars by last year. Now, Mr. Chou wants to give the used-car business a boost by building a separate dealership for used-cars near his new-car showroom in Tianjin.
The dealership here is located in an area of the city that locals call 'the airport,' says Mr. Chou, because of the hangar-like polished stainless steel and glass buildings of around 35 individual car dealerships huddled together in the area.
Some dealers are expanding with the car companies in parts of China that are less developed, smaller cities in the west, for example. But Mr. Chou says he will stay in big markets in big cities and focus on expanding services of his existing locations.
One reason Mr. Chou says he chose to invest in the used-car market in Tianjin is linked to the city's decision in December to reduce the number of new car registrations in the city this year to 100,000 from 300,000 last year. As a result of that decision, Tianjin issued no new car registrations during the first two months of the year, Mr. Chou says, which meant his Tianjin dealership had no sales until March.
'That's why the used-car market is so important,' he says. 'Through trade-ins we get the license plates. The city isn't retiring old license plates, so we can continue to use them.'
Trading in an old car isn't a precise science in China. There is no standardized list of values for used cars based on model and year of issue. Audi provides its dealers with rough estimates, but the rest is determined through negotiation with the customer.
Most Chinese car buyers still pay directly from their savings with a debit card even if they have discarded the practice of hauling sacks of cash to the dealership. But the use of car loans is on the rise. Mr. Chou's dealerships offer three-year loans from VW's finance group with a down payment of 20% to 30% and an interest rate of between 8% and 12%. The number of his customers that finance their new car purchase has risen to between 30% and 40%, says Mr. Chou, up from 10% in 2005.
The more money customers can get for their trade-in, the easier it is for them to buy a more luxurious new car. That is how German auto makers keep customers coming back in Western markets such as the U.S.
German car makers are betting that even if China's phase of explosive growth is ending, the numbers of people who could afford to buy a new car will keep rising. Consulting firm McKinsey last year estimated that by 2022 China's urban population will grow by an additional 100 million people to 357 million. During the same period, the upper middle class, Chinese households with disposable income between 106,000 renminbi and 229,000 renminbi will expand to 54% of all households from 14% in 2012.
This is a class of consumers who would be prime targets for luxury car marketers, especially if they embraced monthly payments. 'In Germany, 30% of the market is premium brands,' says Mr. Stadler. 'Why shouldn't that happen in China?'
在中国市场，二手车销售、汽车金融、售后服务与维修都是非常重要的增收源泉，正因为如此，宝马汽车公司(BMW AG)去年任命了售后专家恩格尔(Karsten Engel)来负责中国业务。恩格尔在亚洲为宝马汽车效力多年，担任过许多领导职务。他曾经担任德国领先的汽车零部件销售商A.T. U Auto-Teile Unger GmbH & Co.的首席执行长，最近负责宝马汽车的集团售后和分销业务。
二手车销售的增长从Chou的业务中可见一斑。上世纪90年代，决定离开德国的Chou在中国开始创业，他的父母20年前离开中国，他却希望在中国寻找非凡的机遇。如今，他经营着23个德国式的提供全方位服务的经销商，与奥迪、保时捷(Porsche)、大众汽车(Volkswagen)和梅赛德斯-奔驰(Mercedes-Benz)建立了合作关系。1998年，他开创了百得利(BetterLife China Investment Co.)，这家公司去年销售新车1.8万辆，收入为人民币11亿元（合1.8亿美元），其中1万辆为奥迪车。
德国汽车生厂商认为，即使中国汽车爆炸式增长的阶段已经结束，有能力购买新车的人数还是会继续增长。咨询公司麦肯锡公司(McKinsey & Co., Inc.)去年预计，到2022年中国的城镇人口将增长1亿，达到3.57亿。同期中产阶层家庭中的上层（家庭可支配收入在人民币106,000-229,000元之间）在所有家庭中的比例将由2012年的14%扩大到54%。