Study forecasts India used car market at 8.2m units by FY2025 | AU Small Finance Bank
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Study forecasts India used car market at 8.2m units by FY2025

    By Sumana Sarkar, Autocar Professional

    Reduced budgets and increased need for personal mobility are fuelling aggressive growth in the pre-owned car segment. An interview with Frost & Sullivan’s Kaushik Madhavan.

    A study commissioned by Volkswagen India to Frost & Sullivan indicates that the pre-owned car market is expected to touch 8.2 million units by FY2025, up 115 percent from 3.8 million units in FY2021. Here is an exclusive conversation with Kaushik Madhavan, VP– Mobility (Auto & Transportation) Practice, Frost & Sullivan.

    What’s your outlook for pre-owned car market in FY2022? What’s been the impact of series of lockdowns on the pre-owned car market?

    We expect pre-owned car sales to be 1.6-1.8x of new car sales in FY2022 compared to 1.5x sales seen in FY2021. There are a couple of strong reasons for that growth. Covid-19 has put a constraint on customer budgets and spending. The budgets are reduced in different form, from 10-20 percent to even 50 percent in some cases for new vehicle purchases. As a result, the budget for new vehicles is narrowed down. If you look at the average bell curve of the pre-owned cars, the maximum sales happen in the Rs. 200,000 - 400,000 bracket. Therefore, pre-owned vehicles are a very good alternative when budgets are constrained. With OEM-certified, authorized pre-owned car channels coming to play, it is improving trust and transparency and creating a sustainable business model.

    The global semiconductor shortage has led to a spurt in pre-owned vehicle prices. Can you elaborate on the current demand-supply situation in India, which is leading to higher prices?

    It is important to look at the demand supply gap from an availability perspective. It all boils down to the vehicle park or the VIO (Vehicles in Operation). In the US, the used car market is about 4x the new car market. This is primarily due to the higher vehicle parc. In India, the vehicle parc, in comparison to new vehicle annual sales, is significantly lower. That means instead of looking at it from the price perspective, we have to look at it from the availability perspective.
    This is where the online platforms come into the picture. Earlier, the availability was restricted to individual cities/ states. However, with the emergence of online platforms, pre-owned car availability has increased. The price of these cars is dependent on availability. If more models are available across the country, price will be more competitive.

    Is the demand-supply mismatch leading to better margins in pre-owned car sales at this point?

    Yes, currently the mismatch and new car supply slowing down may lead to higher rates but I don’t see it as a long-term phenomenon. Higher fuel prices are also playing on people’s minds and influencing their buying decision. Since the fuel prices are growing at an atrocious pace, they might consider saving money by buying a less expensive/used car. In a way, the increasing fuel prices might also influence the growth in the pre-owned car market.

    Most organised players are intensifying their digital presence to rev up sales. Can you elaborate on its potential impact on the share of organised players?

    This is inevitable. The share of organised players will increase for sure. There are several factors contributing towards this. The independent, unorganised players will find it increasingly difficult to take their business online. It makes sense for big players/franchise network with operations all over the country to consolidate and bring it online. The survival dynamics of regional players will become important, especially their ability to source cars. It may not be economically viable for regional players to carry on business individually in a sustainable manner. I see the share of unorganised players going down significantly.
    How does the pre-owned car segment stack up compared to other affordable trending models of ownership like leasing and subscription?
    The desire to buy a car or own a car in India is still very high. It is still an emotional purchase. That will not go away. It is perhaps the usage pattern that will change. Instead of a 1,000km a month, they might now use it for 300-400km a month with the rest of it being taken up by public transport or shared mobility. Therefore, it might impact the usage characteristics but will not impact the purchase characteristics. I don’t see it affecting pre-owned car sales being affected in any way.