Early Signs of Disruption in the Used Car Segment | AU Small Finance Bank 
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Top Trend - Early Signs of Disruption in the Used Car Segment

    By Sricharan R, Correspondent, Autocar Professional

    A recent study by Frost & Sullivan on the ‘Vehicle Buying Preferences of Consumers’ indicates that more than 40 percent of respondents plan to buy a vehicle in the next 12 months. Ashutosh Pandey, CEO, Mahindra First Choice Wheels told Autocar Professional that though the pre-owned vehicle market still remains unorganised, “increasingly, a large number of people are now looking at used cars as one of the options when they decide to buy a car.” The used car segment is seeing early signs of disruption as people do not want to sell their cars and new car exchanges have dropped. This, according to him, is one of the major challenges the industry is facing.

    Pandey highlighted that, “Affordability plays a major role here. Then comes the vehicle preference. In Mahindra First Choice outlets, we have seen an increase in 16-20 percent in sales. Though this is partly an account of pandemic, the mix is very important. The popular cars that are advertised better are the more preferred ones in the used car segments too. While buying a new car, customers tend to be 60 percent rational and 40 percent emotional; it is vice-versa in the pre-owned segment.”

    Pandey pointed out that there is a “drop in repossession of vehicles and this has impacted supply of cars in the used car market. The highest booking is typically seen in the highest priced model. Vehicle preference of new car space gets replicated in the used car market. Many customers are looking for convenience and higher priced vehicles while opting for a pre-owned vehicle.” But he explained that this will be at different price points as most of the customers are ‘climbers’. New buyers will settle for an entry level vehicle, while people using one will go a step higher.

    Sharing his thoughts on the outlook of the pre-owned vehicle market, the Mahindra First Choice Wheels CEO stated that even with the recent spurt in growth, the penetration will be less when compared to the global markets. “In terms of market, the overall used car numbers in FY2020 is around 4.1 million units. And, we expect this to reach seven million by FY2025, which is comparatively less than the US and European markets. But there is a structural issue in the online used cars as the inventory is controlled by the ownership. It is shaping up as an omni-channel strategy,” he added.

    While Pandey feels that “moving from physical to digital is inevitable, end-to-end online play is unlikely to be successful without any physical footprint. New car retail going online is a customer trend but OEMs are far more invested in their dealership network. Used vehicle inspection is the key trust-building factor, the prices are determined on the vehicle condition. Companies are looking at AI-based inspection and at inspecting key parts of the car, not just visual inspection. This is going to play a major role.”

    Pandey concluded that while customer preferences are changing in a post-COVID market, there is a need for used car dealers to adapt to these in a way that instils customer trust and also enhances growth prospects.

    Disclaimer: The opinions expressed in this article do not purport to reflect the views or opinions of AU Bank or its employees.