Short Supply Causes Problem for Used Cars Market | AU Small Finance Bank
Gateway to Digital Life. Download AU 0101.

The problem in the used-car space is not of demand but of supply: Maruti Suzuki’s Shashank Srivastava

    By Sumana Sarkar, Autocar Professional
    The Vehicle Scrappage Policy, which got the green signal in the Union Budget, may give a further impetus to demand for used cars in India. This segment has seen a near-18 percent increase this fiscal at a time when new car sales have declined by 16 percent. Shashank Srivastava, Executive Director (Marketing & Sales), Maruti Suzuki India expects the demand momentum to continue albeit the used car market is constrained by supply at the moment.

    How are the Union Budget announcements likely to impact used car demand and overall prospects for the segment?

    The contours of the Vehicle Scrappage Policy will have a significant impact, not just in new car sales but also used cars. Cars that will be closer to scrappage age (20 years) will obviously lose value and their prices will fall significantly.
    As a lot of old cars will be off the roads, the old car park will reduce in volumes and that should see the upward pressure on prices. So, an interesting scenario may emerge – younger used cars prices going up and older used car prices coming down significantly.
    The point of inflexion will be decided by the level of incentive or disincentive provided in the Scrappage policy.
    Over time, more consumers will try to sell their old cars earlier so the expected average age of used cars available for sale will decrease and this will depress their prices.

    Can you elaborate on the current demand for used cars compared to new cars?

    Physical distancing norms and the increased concerns regarding safety and hygiene have given an impetus to the personal mobility business. The Covid-19 pandemic has shifted customers' buying preference towards personal mobility. Demand for used cars has gone up substantially and this is reflected in the enquiry levels, which are up 15-18 percent year-on-year in a market (for new cars) that has declined by 18 percent so far this fiscal. However, the problem in the used car market is not of demand but of supply.

    With consumers delaying new car purchases, what's the impact on the used car market? Is there a demand-supply mismatch right now?

    Given the unprecedented slowdown induced by the Covid-19 pandemic, the problem in the used-car market is not of demand but of supply. While typically replacement demand is about 25 percent of the total new car sales, this fiscal it has dropped to 19 percent. This drop is reducing the availability of used cars, impacting its sales. This is also reflected in the average age of cars coming for exchange, which has gone up from a typical 6-7 years to 8-9 years. However, the situation is expected to improve as the current economic situation improves.

    Is there still a stigma attached to pre-owned cars in the Indian market still?

    We have varied consumers spread over a vast demography in India and each has its own unique needs. The used car market in India is 1.5-1.8 times of the new car market. Having said that, with the market moving towards a more organised segment offering quality and assurance, the acceptance of used cars is increasing among consumers.

    What's the age and income group of consumers who prefer used cars at the moment? And what is the ratio of first-time buyers in this segment?

    Due to the drastic shift towards personal mobility, first-time buyers have increased by 45 percent.  Around 85 percent of the customers who buy pre-owned cars are first-time buyers. People tend to upgrade their lifestyle at big life events and car purchase is one such upgrade. The average age of True Value customers ranges between 25-45 years with average monthly household income of approximately Rs 50,000.

    What's the average ticket size and models preferred by consumer?

    The used car market in India is dominated by hatchbacks. Hatchbacks contribute the most for the pre-owned segment led by the Swift, Alto and Wagon R.

    How is Maruti planning to introduce the subscription model in the used car market?

    We don’t give guidance on future business plans. Currently, Maruti Suzuki’s subscription model is available only for new cars in Delhi-NCR, Bangalore, Hyderabad, Pune, Mumbai (including Navi Mumbai and Thane), Chennai, Ahmedabad and Gandhinagar.

    What kind of checks does Maruti True Value perform before a used car is certified for sale?

    Every car sold at True Value goes through a rigorous 376-check quality evaluation, refurbishment and certification process. True Value-certified cars come with up to 1-year warranty and three free services. This gives the customer complete transparency about the car.
    At True Value, intelligent digital interfaces are used to evaluate and certify the cars. The information generated from these processes helps the customer to transparently know the car in detail. These include engine, suspension, brakes, electrical fittings and equipment, transmission and steering control, to cover car’s complete health, and reduce the chance of error during evaluation.

    How is Maruti True Value facilitating used car purchases in terms of ease of finance?

    Buying a pre-owned car should not mean being tied up in paperwork for aspects like registration transfer, insurance or finance, to name a few. For this reason, at True Value, dedicated relationship officers take care of all the paperwork in the most seamless and efficient manner. Currently, Maruti Suzuki has also taken the Phygital route, allowing customers to complete processes through digital mediums for ease and convenience. We have tie-ups with various financers to facilitate consumers for financing used car purchases.

    How do you expect the used car market to pan out in 2021?

    There is a renewed interest in this particular segment due to the emphasis that is being given to personal mobility. Further to the Covid-19 outbreak, the new normal will be defined not just by the used-car market but across business verticals in the world. Digital car buying, contactless experience and servicing will see a major growth and we expect a further increase in the demand for doorstep, pickup and drop services. Digitalisation will be the way forward after the pandemic. The used car market is expected to continue the demand momentum and remain buoyant.

    What do you think will be the percentage growth in the used car market in FY2021 versus FY2020?

    Currently, the growth in the used car market is constrained by supply. However, this situation would correct itself once the economic situation improves.