Bad testimony for second hand car market
The consumers trust in the market of second hand cars is – and has been for quite a while now – very low. For the third year in a row, this industry has the least score among all 21 goods markets surveyed in the so called Consumer Markets Scoreboard, an annual evaluation of the European Commission. Especially regarding trust, comparability and rate of problems appearing after purchase, the market shows deficiancies.
The Consumer Market Scoreboard of 2012 states:
"Finally, the automotive markets group receives by far the lowest scores, with the market for second hand cars coming last place in the ranking for goods markets for the third year in a row, the fuels market ranked second lowest for the second year running and the market for new cars ranked fourth lowest."
Due to these bad results, the EU Commission decided to conduct an in-depth market study regarding second hand car market. It covers independent dealerships as well as franchise dealerships and auctions. Private sellers were not considered.
In order to find out about the basic reasons for the low performance, several methods were taken into account: Interviews with experts and stakeholders, online questionnaires with more than 25.000 European consumers, research of documents, literature and prices as well as mystery shopping in all EU Member States, Norway and Iceland.
The study confirmed what was already shown in the Scoreboard: The second hand car market needs improvement in various areas.
Many traders do not fulfil their information duties. This applies to information regarding the condition of the car (mileage, history of accidents, CO2 emmissions and others), maintenance costs and the consumer rights to a legal guarantee. 21 to 27 percent of the consumers stated that they weren’t informed about these details; further twelve to 19 percent were unsure whether or not they received the information.
According to the consumer survey, 62 percent of the traders offered a (commercial) guarantee. Mystery shoppers reported that less than a quarter of the dealers explained that this offer was additional to the legal guarantee. Only five percent of them informed about this without being asked.
The rate of problems that appear within a year after purchase of the car is rather high: 41 percent of the consumers participating in the survey stated to have experienced at least one problem within a year. Most common problems affected: battery / electrical problems (15%); tyres, wheels and suspension (12%) and problems with brakes and with the car exterior/bodywork (both 10%). Two fifth of these complications appeared within a month, three fifths within three months after purchase.
At the same time, only 27 percent of the consumers said that their (main) problem was covered by a guarantee. In order to resolve the average problem the consumer had to spend 518 euros and 23 hours of time. The total annual detriment for these problems was estimated between €1.9 billion and €4.1 billion per year within the EU.
62 percent of the consumers stated that they complaint about problems occurring after purchase, most of them directly to the trader. 44 percent of those consumers got a repair free of charge; another 16 percent got a repair at discounted rate. However, 20 percent of the consumers never got a refund, repair, replacement or documentation necessary. Especially those without an additional commercial guarantee received no help (35 percent).
Another finding of the market study gives an explanation for the low trust of consumers in the second hand car market: According to the survey, 25 percent of the consumers experienced unfair commercial practices during the purchase process. 16 percent of the mystery shoppers confirmed that due to the same experience. The most common practices were "hidden defects, cover-up or falsifications" (11 percent) and "misleading or omitted information" (9 percent). However, significant 40 percent of the consumers who experienced unfair commercial practices didn’t complain about them.
The authors of the study recommend that the EU Member States improve the enforcement of existing legislation with regards to the second hand car market. Information duties, consumer rights to legal guarantee, protection against unfair commercial practices and many more areas are regulated on an EU-wide basis. They make some suggestions about how the situation could be improved, like common guidelines on information duties of dealers, unified quality standards and awareness raising campaigns as well as measures to prevent fraud.
The study points out that the second hand car market is dominated by a knowledge imbalance: consumers know much less about the technical details of the car, about their rights to legal guarantee and about the market in general. This makes it very difficult or even impossible for them to verify the information given by the trader. It is therefore important to, on the one hand, improve the knowledge of consumers and, on the other hand, develop unified and transparent standards for the market. Quality labels which are provided by independent third parties and brochures of automobile clubs could help reaching this goal.