The Indian used car (UC) market is expected to grow at a CAGR of 15 per cent between FY21 and FY26 to touch about 8 million units, supported by increasing motorisation rate, lower vehicle replacement cycle and increasing penetration of used car financing in the country.
Regulatory changes such as BS-VI emission norms and scrappage policies are also aiding the growth in the demand for used cars.
“Indian used car volume was estimated at 3.9 million units ($17.9 billion in value) in FY21, down from 4.1 million in FY20 due to COVID. According to our findings, used car market volume in the country is expected to reach 7.7 million by 2026 and is estimated to be valued at $44.7 billion then,” Aryaman Tandon, Managing Partner & Co-Founder, Praxis Global Alliance, a next-generation management consulting and advisory services firm, told BusinessLine.
“Developed markets such as the UK and US have used car/new car ratio of 3.5 and 2.4 respectively. India is also competing well with developed economies and the used car/new car ratio is projected to reach close to 2 by FY26 from about 1.4 for FY21,” he added.
Newer biz models
The Indian used car volumes grew at a CAGR of 3 per cent during FY16 and FY21. However, the market has evolved significantly in the last decade, largely owing to newer business models and the adoption of new-age technologies across the value chain. India has seen the rise of numerous tech-enabled players in this space, dealing with the sales, servicing, and financing of used cars.
Tandon explained that as the motorisation rate improves, the supply of used cars will keep growing. Since India is still an underpenetrated PV market, there is huge headroom for growth in the used car segment. As the infrastructure gets better in the country, the life of vehicles also improves.
Safe option
Second-hand vehicles are no longer stereotyped with downsized social status. Also, entry-level used cars are perceived to be safer than two-wheelers – less prone to accidents. Hence there is a shift towards used car buying resulting in greater customer pull. Preference for personal mobility in the post-COVID period has also been a positive factor.
Also, with rising income levels, there is a lower ownership cycle now. i.e, people upgrade or change cars faster than ever before. The average car replacement cycle has reduced from 6 years (FY11) to 4.5 years (FY20). This cycle may reduce to less than 3 years in the near future, according to the projections of Praxis.
Tandon said improving financing landscape – active lending support by the NBFCs, banks and captive lending arm of new players – has also aided the user car market growth in recent years. “Close to 25 per cent of used cars are currently financed (vs 70-odd percentage in the new car segment). Of course, interest rates for used cars are higher by 300 -500 bps,” he added.