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Trade in Second-Hand Vehicles Sustainable Transport Africa Henry Kamau Imported Second-Hand Vehicles (ISVs) International trade in second-hand vehicles has been growing rapidly in the last decade Worldwide flow of used vehicles jumped from 1.2 million units in 1997 to over 4.7 million in 2007 This trade has significant impacts on health, road safety, energy consumption and GHG emissions Exporting countries present a vehicle pricing structure that tends to create a relatively high price for using a second-hand vehicle which generates a supply of vehicles for export The pricing structure is created by environmental, fuel consumption and road safety regulations Importing countries are at an income level where their vehicle stock is still small compared to their population and are mainly low to middle income countries With vehicle ownership growth rates that are either growing fast or poised to do so New vehicle markets in these countries tend to be small to medium in relation to the population Reflects fact that an important part of vehicle demand is not being met by sales of new vehicles International Commerce of light-duty ISVs 1997 International Commerce of light-duty ISVs 2007 The Used Car Market For a start, the average car has more than one owner over its lifetime – the usedcar market is clearly much bigger than the new-car market. Bulgaria, Cyprus, Jamaica, New Zealand and Russia are just some of the many countries where imported used cars account for the lion’s share of national car sales. The magnitude of international trade can be appreciated from the fact that: excluding trade with Canada, the US exported approximately one third as many used automobiles as new automobiles in 1999. Japan, which is another major exporter of used cars, was estimated to have shipped abroad a record US$1 billion in used vehicles in 2003. In many countries there are also major sales opportunities for remanufactured and used motor vehicle parts and components. The market has been estimated at about $60-70 billion in sales worldwide, as people on lower incomes in particular keep their vehicles running for as long as they can to avoid the expense of purchasing another one. New vs Used Car Purchasing Source: McKinsey, IHS, Nielsen Snap shot of traffic congestion in a developing country snows all private vehicles are used imports Regulating Used Imports Other countries use licensing requirements, special tariff rates or other lessinterventionist measures to regulate imports. Countries in Latin America, Africa, and Asia, including major players like Brazil, China and India, are the leading users of restrictions in this area. International trade in used motor vehicles is particularly often subject to trade restrictions. According to work by Danilo Pelletiere and Kenneth A. Reinert of George Mason University, only 58 out of 132 countries surveyed have no import restrictions in place. Twenty-one countries ban importation outright and the remaining countries apply a combination of less restrictive measures, such as conditional import bans (usually related to age or other technical requirements) or special taxes and charges. Information for Selected Exporting Countries Source: CTS EMBARQ Mexico, 2012. Data from World Development Indicators and national manufacturer association and Transport Ministries. Information for Selected Importing Countries Source: CTS EMBARQ Mexico, 2012. Data from World Development Indicators and national manufacturer association and Transport Ministries. Restricting Used Imports Many, predominantly developing, countries also restrict the import of used or remanufactured or rebuilt vehicle parts and tyres. There are import prohibitions in place, mostly in African countries and in some low-income Asian and Latin American countries, as well as in China Prohibition is common particularly among Latin American and African countries, although it exists in some Asian and east European countries as well. Their governments usually cite health and sanitary reasons for these measures Outright bans are rare; instead, most countries demand that the goods in question meet strict technical standards Hazardous Used Vehicles imported to Africa This modern used passenger petrol/gasoline engined vehicle equipped with variable valve timing was manufactured without a Catalytic converter or Anti-Lock Braking (ABS) system Emerging Markets Growth in Vehicle Trade Car purchasing trends in developing countries have changed due to a rapid increase in the rate of Internet and mobile penetration, rising GDP and an emerging middle-class society Some key factors in the growth of these trends include: Internet and mobile penetration Growth of E-commerce in second hand car trading Correlation of GDP and motorization rate Governments in emerging markets are unwilling to restrict affordable used vehicle imports due to the economic benefits to society of increased commuting ability Used Vehicle Imports Driving Rapid Growth in Vehicle Fleets Uganda Vehicle Imports 70000 60000 50000 40000 30000 20000 10000 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 Uganda Vehicle Imports 2009 2010 2011 2012 2013 2014 Traffic congestion in Nairobi Despite rapid expansion in Africa’s urban road networks, traffic congestion from used vehicle imports continues to outpace available road space Global Vehicle Sales Growth Rates Source: XCOM Africa GmbH – Data excluding China E-Commerce Platform 80% of new car and 100% of used car customers begin their shipping experience on-line in developed markets Emerging markets are rapidly catching up to these figures as shown in Google’s automotive search queries Auto dealers are no longer the primary source of information especially for customers between 18 and 34 years of age 90% of Consumers in this age group use a mix of OEM and dealer sites, forums, blogs, and social media to gather information and compare prices and offers before making their final decision Increasingly, internet based campaigns can inform and influence used car purchases in developing countries. The Internet’s Role in Car Sales Year on year search growth -Automotive Google Search queries GDP per Capita and level of car ownership Countries with greater population density tend to continuously improve on the public transport system and infrastructure, leading to a lower need for private cars and other types of vehicles In emerging markets where the public transport system and infrastructure improvements are growing slowly and safety standards are not being met, there is a greater incentive for people to opt for their own vehicles rather than rely on public transportation Vehicle ownership accelerates rapidly when countries reach US$2,500 per capita until it reaches US$10,000 per capita, according to the IMF, between US$3,300 and US$7,500 is when the growth rate is at its peak IMF recently projected the growth of GDP in emerging markets will be substantially higher than in developed economies in the near future Trend- GDP per Capita & Car Ownership Vehicle Sales Growth 2013 Index numbers, 2005=100 – source: XCOM Africa GmbH Motorization Rates in Africa Motorization in Africa 350 Passenger cars per 1000 persons 300 250 200 150 100 50 0 Environmental impact of used car imports GREEN HOUSE GAS EMISSIONS Vehicles that are older than ten years show a fuel efficiency that is significantly lower than the average of new vehicles. Specifically, Light Trucks (which is the preferred segment for ISVs) only have 40% of their initial fuel efficiency after 25 years in use. HARMFUL VEHICLE EMISSIONS In some emerging markets, newer models (until 10 years) represent around 50% of the passenger vehicles and are responsible for less than 15% of total passenger vehicle criteria pollutant emissions. Renewing and maintaining a clean vehicle fleet Entrance barriers to ISVs aim to reduce the absolute number of imports of a category (i.e., all vehicles older than five years) of second-hand vehicles. Most entrance barriers are fast and cheap to implement, and in most cases relatively easy to apply for designated authorities. Well-designed entrance barriers will contribute to a significant reduction of high-emitting or dangerous passenger vehicles. A Scrapping Program Scheme has the objective of providing incentives to promote the early retirement of older vehicles and to replace them with other means of transportation. In this way, scrapping programs help reduce the average age of the national fleet by increasing the vehicle mortality rate and thus accelerating the rate at which the fleet is renewed. I&M ensure that the regulated fleet is well maintained. In order to do so, authorities establish a desired performance standard. I&M programs are normally accompanied by sanctions to incentivize compliance to the standard. A well designed I&M program will significantly contribute to a reduction of high-emitting passenger vehicles and will reduce vehicle exhaust emissions. Additionally, implementation of I&M programs is recommended alongside safety checks. Roadworthiness testing (I&M + road safety checks) represents one of the best ways to improve road safety in developing countries. Road Safety and Emissions Testing in Addis Ababa Policy Actions to ensure a cleaner vehicle fleet Border Inspection: Border inspections, and environmental and safety certificates have significant advantages compared to other policy actions. Entrance barriers focus exclusively on ISV and do not affect the national fleet. Therefore, they are easier to implement and execute. In comparison to an Inspection and Maintenance program or a compulsory vehicle insurance program, entrance barriers need less time, less administration (including enforcement costs) and cause less public attention. Scrapping Program: A scrapping programme is a good complement to entrance barriers. Vehicles that fail border inspections or do not have environmental or safety certificates have a certain amount of time to comply with regulations. If they fail a second time, they are scrapped, thus eliminating the least fuel-efficient and safe vehicles from entering the national fleet. Inspection and Maintenance (I&M): This policy action represents another good complement to border inspections and entrance barriers. If well implemented, such programmes improve maintenance levels of the national fleet, encourage vehicle renewal, reduce emissions, and create jobs. They can however face significant resistance from the public, require specialized equipment, and require stringent enforcement. Compulsory Vehicle Insurance: Compulsory vehicle insurance is important because of the risk created by motorists for other traffic participants, and the danger borne by motorists to their own health and life. This danger of road accidents has to be internalized and compulsory vehicle insurance represents the perfect policy action to do so. Hybrid and Electric Vehicles not marketed in Africa Despite used imports of the Prius coming into Kenya, Toyota’s latest Plug-in Hybrid Prius on long term test in Nairobi is not marketed by the local Franchise Dealer Toyota Kenya Battery Electric Two and Three Wheelers With zero tariffs for electric vehicle imports in many African countries, coupled with falling electric vehicle prices and abundance of renewable energy, there is now a focus on supporting this trade Proposed Activities in Developing Countries for Vehicle Emissions Reduction PUBLIC AWARENESS: Greater and effective public awareness on the health impacts of vehicular air pollution will encourage governments to introduce and enforce necessary legislation ELECTRIC VEHICLES: Target achieving minimum EURO IV for in-use vehicles then focus more on encouraging the use of battery electric vehicles particularly for Africa where renewable energy forms the bulk of power generation MODAL SHIFT: Support the introduction and high capacity use of NonMotorised Transport, Mass Rapid Transport Systems, web based taxi services and car pooling www.sustainabletransportafrica.org
