Chip Shortage Boosts Demand for Pre-Owned Cars | AU Small Finance Bank
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Chip shortage boosts demand for pre-owned cars

    Sumana Sarkar, Autocar Professional
     

    The semiconductor shortage is one of the burning issues across the automotive industry. New car lots are almost empty, assembly lines have come to a halt in many parts of the world and the waiting period for new cars is on the rise. This in turn has led to a surge in demand and price of pre-owned cars.

    By the end of the current financial year in March 2022, used car sales in India are expected to jump to 7 million units from the 4 million clocked in FY2021. The current chip shortage has no doubt given a further boost to the sector as the second wave of Covid-19 started waning across the country and businesses started opening up while also accelerating the need for personal mobility.

    While used car sales are expected to see close to a 75 percent year-on-year growth, prices have spiked up anywhere between 30-40 percent, depending on the market and the model. In fact, the international used car price Benchmark – the Manheim Index – continues to hover close to the peak prices hit in May 2021. Overall, in the first three weeks of August, the Index experienced a cumulative 0.4 percent increase, indicating the upward trend to stay put.

    With vehicle manufacturers unable to meet demand for new cars, there is a resultant higher sales conversion of used cars globally. However, the demand for variants and segments keeps changing depending on the market under consideration. While the urban regions generally saw an uptick in demand for luxury and sports vehicles, entry level cars are amongst the top favourites in Tier II and Tier III cities as well as the rural areas. Demand for used SUVs too is witnessing an increase.

    On the whole, while on one hand the chip shortage has spelt doom for the new car industry, the used car market is actually garnering gains. Both in terms of demand for used cars as well as their prices, the trend is pointing north.