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Used-car sales ring in double-digits growth even as new-car sales slump

Used-car sales are registering double-digits growth at a time when auto sales are on the slide. This is thanks to a slew of factors, such as the reluctance to invest in a new car during an economic downturn, increased affinity for value consciousness, better quality of vehicles coming into the used-car market and increased penetration of organised players.

The impending transition to BS-6 emission norms from April 1, 2020, also augurs well for the used-car market, as its value proposition gets a boost thanks to the increased price gap between used-cars and old cars. The expected increased supply to the used-car market due to the ongoing liquidation of BS-4 cars will also help, experts said.

Used-cars remain insulated from the prolonged slowdown beleaguering its new-car counterpart, where passenger vehicle sales declined year-on-year by 16.40 per cent during April-December 2019. Used-cars registered a growth of about 12 per cent in 2019, compared to 2018 (calendar year), with the total used-cars market clocking up volumes of around 42 lakh units in 2019, Ashutosh Pandey, CEO, Mahindra First Choice Wheels, told BusinessLine.

All players in the used-car market that BusinessLine reached out to affirmed double-digits year-on-year(y-o-y) growth.

While the slowdown in the new-car market as well as the overall subdued sentiments in the economy have affected the used-car market, its impact hasn’t been pronounced enough to result in falling sales, experts said.

In fact, the used-car industry has been growing at 10-15 per cent per annum over the past few years, according to Pandey. The total number of used cars in the car park is quite sizeable — comprising cars sold in the last five to six years — which essentially translates to the slowdown in the new-car market not having an immediate effect on used-cars, he said.

Better availability, more transparent pricing of used-cars than earlier, and scope for further consolidation and improvement in the market aided by the increasing penetration of the organised used-car market are among reasons pointed out by Shashank Srivastava, Executive Director, Marketing & Sales, Maruti Suzuki India. Maruti Suzuki True Value is the company’s pre-owned car sales network.

According to the latest research by IndianBlueBook, a used-car pricing guide by Mahindra First Choice Wheels, the penetration of organised players in the used-cars market has been increasing continuously — rising from 12 per cent in 2015 to 18 per cent now. This bolsters customers’ confidence in areas such as pricing, vehicle condition and post-sale service, said Pandey.

“The longer-term structural factors providing a fillip to the used-car market in the country are better quality of vehicles coming into the used-car market, which is accelerating the upgrade from two-wheelers to cars; better financing options; increased organisation of the industry by players such as Mahindra First Choice, and the strong ‘economy’ proposition of the used vehicles,” said Pandey.

Those looking to change to a new car will first sell their existing car. Almost 30-35 per cent of the sale of new car sales happen with such an exchange, said Amit Jain, co-founder and Chief Executive, CarDekho, an online automotive marketplace that has a retail auction model for pre-owned cars. “If you are buying a new car, you will end up selling your used-car due to limited parking place. New-car sales this year will be around 28 lakh to 30 lakh units. So, in all fairness, the used-car has to go out to accommodate a new one,” he said.

The propensity of consumers to reduce their discretionary spending and resort to deals during the time of an economic downturn has aided the growth of the used-car market, said Sunny Kataria, VP, Auto OLX India. OLX sells second-hand goods, ranging from smartphones to high-end cars on its platform. On average, pre-owned cars are 20-30 per cent cheaper than new cars, he said.

Historically too, used-car sales have had less volatile reactions to market shocks than new cars, such as during the 2009 recession, said Shubh Bansal, Co-Founder, Truebil, a virtual marketplace for pre-owned cars.

Over the past three years, there have been changes in the customer buying patterns, with people increasingly looking at factors like value for money, while the average ownership of a car has also come down to three to five years, compared to the eight to 10 years earlier, said Bansal. “In many cases, a three-year-old vehicle is as good as a new one, which ultimately encourages the buyer to opt for a used car. This is no longer surprising given our economic development and increase in disposable income. The used-car market is driven by supply and not demand, unlike the new car market,” he said.

The tendency to upgrade to the latest cars is prominent in metro cities like Delhi and Mumbai, leading people to sell their existing cars which have been driven for barely two to three years, explained OLX’s Kataria. These cars, dubbed “unboxed cars” remain in good shape, come with insurance and attractive deals on online marketplaces for used-cars like OLX, he added.

Small towns and cities are also propelling an unprecedented growth in used cars as change in consumer preferences in tier-1 cities has been resulting in increased discarding of older cars for new cars, said Truebil’s Bansal. This forms the core supply of used-cars for tier-2 and tier-3 cities, he said.

A large number of customers are also migrating upwards from owning two-wheelers to owning cars. For these customers, used-cars end up being a very persuasive option, said Pandey.

Nearly 85 per cent of used-car customers are two-wheeler upgraders, pointed out Maruti’s Srivastava.

Another reason is the waning social stigma that has been traditionally associated with used-cars. “People today look at cars as utility vehicles, required to travel, instead of attaching social prestige with it. This is very similar to the culture in the West, where people are practical and see cars as only a means of transport. This trend will continue to grow as more and more people begin to live in metropolitan cities. This will continue to create more demand for used-cars in the country,” said Sandeep Aggarwal, Founder & CEO, Droom.

Entry of many online players are also positively impacting the used-car industry, pointed out Naveen Soni, Senior Vice-President, Sales & Service, Toyota Kirloskar Motor. Toyota U Trust is TKM’s used-car business.

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