The rise of online auto sales platforms like Droom and CarDekho, exceptionally high number of new car launches, fluctuations in fuel prices and increase in vehicle insurance rates is leading to a huge growth in the used car sales market. At 1.2 times the size of the new car market, the pre-owned car market is set to spiral to 7 million units a year with a market size worth $ 30 billion by 2023 from the 4 million units in 2018, according to Deloitte India.
“The drivers for this resurgence in used-car numbers include an expansion of the organised segment of the industry, a high number of new car launches and a rebound in fuel prices,” Rajeev Singh, Partner, Deloitte India, told BusinessLine. Calling it a trend that appears to be gaining strength, he said that India's used-car market saw the sale of around 40 lakh vehicles in 2018 to overtake the volumes for new cars at 36 lakh in the same year. In 2018, the used car market grew by around 11 per cent year-on-year. In 2017 at 3.6 million units, the pre-owned car market grew by 9 per cent.
Major players such as Maruti Suzuki, Toyota, Hyundai and Mahindra & Mahindra, which have dedicated arms for used cars, have been joined by Carnation, CarDekho, Cars24, Droom, OLX, Quikr Cars and auto manufacturers such as Nissan and Renault. Most of these players now have tie-ups with financiers that give loans for used cars. At Mahindra First Choice Wheels, over the past 3-4 years, the average growth in retail sales from its franchisees has been 25 per cent to 30 per cent, with a growth of 22 per cent between FY18 and FY19, said Ashutosh Pandey, the company’s CEO.
Maruti Suzuki True Value’s pre-owned cars sales has increased more than double digit over last year, said R S Kalsi, Senior Executive Director, Marketing & Sales, Maruti Suzuki India Ltd.
Vibhor Sahare, CEO, and co-founder at Gaadi, a retail auction model for pre-owned cars by CarDekho.com said the overall used cars business of the company has been growing at at least 100 per cent year-on-year over the last three years.
The fastest growing segment in the used-car market is the entry segment, with Maruti Alto, WagonR, the Swift and the Hyundai i10 accounting for nearly 60 per cent of volumes. The Used:New car ratio has increased from 1.2 to 1.3 over the last 3 years. It is expected to be 2 by 2023-24.
Pandey said that the twin shocks of demonetisation and GST, which had posed temporary setbacks to the industry, has reduced the incentives for cash led transactions of used vehicles. This has made people realise that buying used vehicles from formal channels is safer and more convenient.
“Buying a second hand car is no longer considered a big risk unlike 10 years ago,” said Singh, citing an improvement in the manufacturing quality of cars in the country over the last two years.
The dearth of clarity on what the pricing should be is the biggest challenge in the used vehicles segment. The industry standard of pricing called Indian Blue Book (IBB) has now become the standard recognized by all industry participants, most OEMs and financial institutions as the most accurate pricing of used vehicles. In fact, the General Insurance Council (GIC) has mandated the use of IBB for valuing used vehicles, Pandey explained.
Singh identified the increase in supply of cars also as a driver for uptake of used cars. Market has seen an exceptionally high number of new car launches - 31 - or facelift of old models during the 12 months – January to December 2018. As a result, the number of used cars less than two years old, with under 20,000 km clocked on the odometer, has seen a surge.