The used car market in India is seeing renewed traction in a post-Covid world. With consumers keen on personal mobility, the pre-owned segment offers affordable alternatives with easy financing.
The adage ‘old is gold’ has got a brand-new interpretation in context of the automobile industry. As car makers struggle to rev up sales of new cars, pre-owned cars have become the poster boy of an industry-wide sales revival. Undoubtedly, there is a distinct shift in consumer trends. Enhanced need for personal mobility, financial uncertainties putting a cap on budgetary spends and surging fuel prices are gradually tilting the balance in favour of pre-owned car segment.
It is a no-brainer that the pandemic has heightened the concerns around personal safety, health and hygiene and this has given impetus to the personal mobility needs of customers. Maruti True Value is one of the largest organised players in the pre-owned car sector. Speaking about how Covid disrupted the short-term dynamics and caused a boom in used car sales, Shashank Srivastava, Senior Executive Director (Marketing & Sales), Maruti Suzuki India, explains that “Customers are also facing job losses or reduced incomes. The enforcement of new emission and safety norms have led to an increase in new car prices. Consequently, the demand for pre-owned cars has surged substantially since last year. This is reflected in the increasing enquiry levels, which are witnessing a spike of 15-18 percent year-on-year. Considering the low penetration of cars in India, this trend is expected to continue in times to come.”
However, this is only one side of the coin. Greater awareness, increased trust and transparency are also playing a part in keeping this segment buzzing. Ashutosh Pandey, CEO, Mahindra First Choice Wheels, points out the key dynamics that’s triggering this change. “Larger awareness among consumers and better reach of organised players in Tier 2, 3 and 4 markets has definitely helped the organised segment gain larger market share. Also, digital has started playing a greater role in the entire user journey which is dominated by the organised players. Also, all the services offered by the organised players like warranty on the car, assistance with paperwork, financing, RSA and certification of the cars is further bolstering this move.”
Demand-supply mismatch boosting margins
Apart from demand dynamics and increased need for personal mobility, which have led to the rise in used car prices, the shortage of semiconductors and resultant new car production delays are also contributory factors. Moreover, the series of lockdowns to contain the spread of Covid-19 also resulted in series of financial uncertainties and job losses. As a result,car owners are holding on to their existing steeds much longer than usual. As Shashank Srivastava outlines, “With customers holding on to their cars due to the pandemic, there is a shortage of quality pre-owned vehicles. However, in this industry and more specifically for True Value, the price that a vehicle fetches depends on its quality and the refurbishment done on the same. Thus, each pre-owned car on offer is unique.”
Moreover, as Mahindra First Choice’s Ashutosh Pandey points out, “The used car industry is generally a supply starved industry and more so for the top selling models. Two out of three dealers feel that used hatchbacks are becoming more valuable due to their increasing demand. Certain geographies have seen prices firming up by 2-3 percent in the recent months.”
Used cars as catalysts for new
The overall expectation is that the used cars market will continue to move northwards with greater gusto. Most studies expect pre-owned sales to increase to 1.6-1.8 times the new car sales by end of this financial year, well over the 4 million units mark.
Srivastava views used car buys as the “stepping stone towards the purchase of a new car in the near future. Secondly, with a car parc of over 4 crore, there is ample opportunity for customers to upgrade or replace their existing vehicles with newer, safer, environmentally cleaner and technologically advanced vehicles. These traded vehicles would help more people begin their love affair with automobiles.”
Pandey expects the used car market to breach the 7-million-units mark by FY2025 with organised players taking a lion’s share in this but there are challenges. “We are yet to solve wider reach of vehicle financing, paperwork transfer-related issues post car purchase and of course, overcoming the trust barrier in this category among the consumers.”
The need for alternative mobility and an accelerated shift due to the pandemic situation will lead to growth of the segment and organised players are set to gain a significantly higher chunk by FY2025, almost 45 percent.