The Japanese Used Car Market: A Post-Pandemic Growth Engine

There is limited English documentation and analysis on the Japanese used car market. However, with millions of vehicles under lease agreements—typically for three years or 90,000 kilometers—due to the costly “shaken” process (a mandatory technical inspection and insurance renewal for vehicles over three years old), Japan offers a substantial supply of well-maintained and pristine cars. The diligence and care of Japanese vehicle owners further contribute to the high quality of used cars available in the market.

Status Quo

For this reason, Japanese used cars are highly sought after throughout the Asia-Pacific region, including the Middle East. In countries with limited new car production, such as Pakistan, Bangladesh, and Cambodia, as well as in regions where owning a car is essential for employment opportunities, like the Middle East, these vehicles are in high demand. In some markets, like Pakistan, nearly new Japanese vehicles (6 to 12 months old) even dominate the corporate car sector.

Domestically, the popularity of second-hand vehicles remains strong in Japan. Venturing outside the bustling center of Tokyo, one can find rows of used car dealerships lining the roads, each offering hundreds of affordable cars. The prices of these vehicles can be surprisingly low, with both mainstream and luxury brands available at attractive rates, making them a viable option for first-time buyers, expats, and car enthusiasts alike.

From Pandemic Slump to Recovery

The used car market in Japan is evolving rapidly, driven by shifting consumer behavior, technological advancements, and macroeconomic conditions. The market, currently valued at USD 62.6 billion, is expected to reach USD 84.9 billion within five years (CAGR of 6.28%).

Like many industries, the Japanese used car market faced significant challenges during the COVID-19 pandemic. The lockdowns and restricted movements led to a temporary dip in sales. However, compared to the new car market, the impact on used cars was less severe. Consumers, facing economic uncertainty and reduced disposable incomes, turned toward more affordable used cars instead of new ones. Moreover, the pandemic highlighted the necessity of private transportation, especially as public transport became less desirable due to health concerns.

As Japan transitions back to normalcy, the used car market is rebounding strongly. Digitalization and innovative sales channels are contributing significantly to this recovery. Moreover, rising incomes, growing demand for luxury vehicles, and an increased interest in compact cars are driving the market forward. However, rising interest rates pose a potential challenge by making financing options less attractive for some buyers.

Digital Transformation: Redefining the Used Car Buying Experience

Technological advances are fundamentally reshaping the used car market in Japan. With widespread internet penetration and the proliferation of smartphones, the sector is becoming increasingly digitalized. Platforms offering virtual tours, detailed car specifications, and digital test drives have attracted a new generation of tech-savvy buyers. These platforms enable customers to compare models, check vehicle histories, and even secure financing—all from the comfort of their homes.

A significant portion of the market’s growth can be attributed to younger buyers, particularly those in the 25-40 age bracket. This demographic prefers an entirely digital buying experience, from initial research to final purchase, often complemented by services such as doorstep delivery. To meet these demands, multi-brand and independent dealerships are boosting their online presence, often developing custom websites and leveraging social media platforms like Instagram to reach potential buyers.

Online used car platforms like SoftBank’s CARRO JAPAN Corp. have also emerged, revolutionizing the subscription and leasing models. These platforms, along with others, are enhancing customer experience through value-added services such as vehicle history reports, warranty extensions, and transparent pricing models.

Auctions and the Global Market Influence

The influence of the Japanese yen on the used car market cannot be overlooked. The weakening yen has made Japanese cars more attractive to international buyers, particularly in markets where there is a high demand for quality used vehicles. This increased demand has driven up the prices of used cars within Japan itself. In 2021, the average price of a used vehicle rose to 1.55 million yen, compared to 1.36 million yen the previous year. Models priced between 500,000 and 1 million yen remain the most popular.

The global semiconductor shortage has also contributed to a unique phenomenon: certain used car models are now more expensive than their new counterparts. This has led to a surge in auction prices, where buyers are willing to pay a premium for vehicles in high demand. Auctions have long been a staple of Japan’s used car market, but their prominence has increased even more in the wake of supply chain disruptions affecting new car production.

The Future of the Japanese Used Car Market

The future of the Japanese used car market looks promising, with several factors driving growth. First, the increasing availability of value-added services, such as vehicle financing, insurance, and extended warranties, is making used cars more attractive to a broader range of consumers. Second, environmental concerns and a growing focus on sustainability may further boost the market, as more consumers opt for smaller, fuel-efficient vehicles instead of larger, fuel-guzzling ones.

However, challenges remain. Rising interest rates could stymie the market’s growth by making car loans less affordable. Additionally, the global economic slowdown and inflationary pressures could affect consumer spending power in the short term. Nonetheless, the industry remains optimistic that pent-up demand and a return to economic stability will help offset these concerns.

Key Players and Competitive Landscape

The Japanese used car market is highly fragmented, with numerous online platforms, independent dealerships, and multi-brand outlets competing for market share. Major players like USS Co. Ltd., PROTO Corporation, and ORIX Auto Corporation dominate the landscape, but new entrants are continually emerging, offering innovative business models and digital services.

Notably, Lexus, the luxury car division of Toyota, recently launched a certified used car program, allowing customers to purchase pre-owned vehicles that have undergone rigorous inspections. This move is expected to increase the availability of high-quality used luxury cars in the market, further enhancing consumer confidence in purchasing pre-owned vehicles.

For the Fleet Manager

How does this impact leasing costs? One might assume that as the used car market becomes more professional, residual values would increase, potentially leading to lower lease rates. However, this is unlikely to happen for several reasons.

First, the Japanese leasing industry is known for being stable and conservative. When comparing bids from various leasing companies, price differences are minimal, reflecting a consistent assessment of residual values. Additionally, Japanese lessees prioritize stability and expect their lease costs to reflect that, rather than fluctuating with market changes.

Second, the pool of domestic buyers for used cars is limited. Japan’s population has been steadily declining, which restricts growth opportunities within the country, leaving exports as the primary expansion route. However, since Japan produces right-hand drive vehicles, exports are only viable to a limited number of countries.

Moreover, the Japanese company car market does not align with the preferences of the average consumer. Company cars are often standardized, utilitarian vehicles that tend to be less desirable in the second-hand market, as many consumers prefer models that would be prohibitively expensive to buy new.

Finally, Japanese consumers have easy access to highly affordable new cars. Compact kei cars, which are especially popular, are competitively priced and come equipped with modern safety and comfort features, further diminishing the appeal of second-hand company vehicles.

Picture Credit: Shutterstock 2299336435

Data Source: Mordor Intelligence, Japan Used Car Market Size & Share Analysis – Growth Trends & Forecasts (2024 – 2029)