Are We Seeing A Boom In The Used Car Market In India?

By RimTim Staff Writer
June 21, 2016
Used car

When Tulsi Talwar, a 23-year old fashion designer based in Mumbai wanted to buy her first car, her options were limited, as she only had a budget of Rs. 3.5 lakhs. She had a choice of cars from the entry level segment such as Tata Nano, Maruti Alto, Renault Kwid and Hyundai Eon – but she wanted something better than that.

That led her to shop for a used car on CarWale.com, one of the best online companies in India for buying and selling used cars. She had a much wider choice of cars there and was able to buy a 2013 Hyundai i20 for just Rs. 3.1 lakhs. Many Indians such as Tulsi are looking to buy their first car from the used car market, which is growing at a rapid clip in the country.

Demand for used car in India

Indeed, according to CRISIL, 4.2 million consumers bought used cars in India in 2014. The demand for used cars gets higher every year, as many car owners look to sell their old cars and upgrade to a new car faster. Here, “old” means a car that is no more than 3 or 4 years old.

As Vinay Sanghi, CEO, CarTrade.com, a top online seller of used cars explains, “The average ownership of vehicles is now around four years. While the new car market size is 2.5 million, the used car market is about 3 million today.’’

This is astonishing for those of us who grew up in India in the 1980s and 1990s, when families used to hold on to a car for 20 to 25 years or more. According to CRISIL, the huge demand for used cars has meant that the ratio of new to used cars today is 1:2.2. This was 1:1.2 only till a few years back.

This means for every 10 new cars sold by companies such as Tata Motors, Hyundai, Maruti, Renault and other automobile companies in India, there are 22 used cars that find buyers as well.

Market scenario of used cars in India

Ajay Srinivasan, director, CRISIL Research explains, “Shorter holding periods, a rising mass of aspiring buyers, greater participation of organised original equipment manufacturers-backed players in the used-car market, accessibility of finance options, and availability of certified and refurbished cars with warranty are fuelling growth in the used-car space.”

Used car market

According to JD Power, the top global market research firm, the percentage of first-time car buyers in India buying used cars grew from just 4% in 2011 to 17% in 2014. This increase in used car sales comes at a time when companies such as Tata Motors are struggling with their vehicle sales.

Indeed, over the last few years the passenger vehicle sales in India were tepid. It is the used car market that has come to the rescue of the automobile industry.

Abdul Majeed, partner at PwC India says, “Due to high inflation as well as interest rates, the positive sentiments have not resulted in an increase in the new car sales. Meantime, first-time car buyers are postponing new car purchases and going either for two-wheelers or used cars.”

Automobile industry in used car market in India

The established players in the automobile industry have decided to take advantage of the trend for used cars than get left behind. Mercedes-Benz India launched its new pre-owned car business brand recently.

Managing Director and CEO Eberhard Kern explained that his company’s used car business had grown 39 percent in the period between January-September, 2014. He says that this is nothing unusual: “For every 100 new cars sold in India, 110 pre-owned cars are sold. In the U.S., it is four times while in Germany it is 2.2 times.’’

Maruti Suzuki is the most popular brand among used car buyers in India. Generally, compact hatchbacks are most popular in the used car market, accounting for 70% of the sales. This is followed by sedans and luxury cars. But generally, a used car buyer is not as brand conscious as a new car buyer.

In the present time, mostly first-time buyers go for used cars in India. The reason for this is that first-time buyers tend to be more cautious about spending their money, especially in a time of high inflation. It has also helped that many car makers have entered the used car market selling branded pre-owned cars that are certified by the original manufacturers. So buyers are more confident about their purchase.

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