The used vehicle market is expected to maintain robust growth this year, with projections indicating double-digit expansion in FY25, according to prominent vehicle financiers.
Industry experts point out that over the past five-six years, State transport undertakings have reduced their investments in public transportation, particularly in semi-urban and rural areas. In the past, State undertakings introduced many new buses annually in semi-urban to urban regions, but this trend has declined, opening opportunities for private transportation to fill the void.
Additionally, vehicle ownership is rising among semi-urban and middle-income groups. Another trend observed in the industry is the shift from two-wheelers to four-wheelers, with many buyers opting for second-hand vehicles.
Increasing vehicle prices
According to Umesh G Revankar, Executive Vice-Chairman of Shriram Finance, used vehicle prices have remained strong year on year, with growth projected at 10-12 per cent.
He expects demand for used commercial and passenger vehicles to increase in the coming years. Although the new vehicle cycle that began in FY22 is still developing, it will take time to fully impact the market. Currently, the industry is growing at 12-15 per cent, but this could improve as the market expands.
Karthikeyan Srinivasan, CEO of IndoStar Capital Finance, is optimistic about the continued momentum in the pre-owned vehicle sector. He cites several contributing factors, including a scarcity of older vehicles, ongoing price increases in the new vehicle segment, and limited financing options for retail FTU (first-time user) operators.
Limited supply
He said that the used commercial vehicle sector has grown over 30 per cent in the past two years, driven by limited supply. This shortage is a consequence of the Covid-19 pandemic; new vehicle sales were significantly low between FY20 and FY22, he explained. The industry faced dual challenges during this period: the transition to BS-IV standards and the impact of the pandemic.
IndoStar expects the used commercial vehicle market to remain stable and continue its growth, further supported by the scrappage policy, which encourages customers to replace their vehicles. The company is expanding into tier-3 and -4 cities, with a focus on the used commercial vehicle segment. Srinivasan believes that increasing rural demand, bolstered by a favourable monsoon season, will contribute to growth in these regions.
Cholamandalam Investment and Finance Company also forecasts positive growth for the used vehicle industry throughout the year. “The growth of the industry is directly linked to the rising prices of new vehicles over the years, coupled with increased replacement demand,” the company said. Used vehicles currently account for nearly 28 per cent of the Murugappa Group NBFC’s portfolio.