The pre-owned car market is expected to outpace the new car market, with the industry expected to clock a healthy growth rate of 15 per cent in FY22, according to the ‘OLX Autos -CRISIL Study 2021.’

According to the report, a 12-14 per cent CAGR is expected for the pre-owned car market over the next few years, taking the size of the market to more than seven million vehicles by FY26, from 3.8 million units in FY21.

In contrast, the new car market is expected to grow at a tepid 10 per cent CAGR.

“With many people preferring socially-distanced personal mobility, during and because of the pandemic, the pre-owned car market is expected to continue to be a sunrise sector,” the report said.

Additionally, accelerated digitalisation is expected to drive an increasing share of sales through digital classifieds, which will move to 25 per cent from 15 per cent currently. The share of organised players in the pre-owned market, including digital platform sales, will also see a 10 per cent increase, from 20 per cent currently to 30 per cent in five years.

“The preference for personal mobility has propelled a huge swing in favour of used-car sales that are expected to reach a phenomenal 1.5x more than that of new car sales over the next five years. The digital switch has been highly transformative, bringing in its wake increased transparency, trust and a huge choice of new-generation vehicles to the consume,” Amit Kumar, CEO, OLX Autos India said.

Key growth triggers

Growth in the pre-owned market is expected to be led by the pandemic, digitalisation, changing demographics and aspirations, first-time buyers, and availability of financing options are driving sustained growth in the pre-owned car segment.

Digital platforms are gaining traction due to their wide reach, accessibility and ability to provide a variety of options, the report said. The share of organised players, including digital platforms, to total industry sales is expected to grow to 30 per cent by FY26, from around 20 per cent in FY21. Additionally, the share of vehicle sales through the digital classifieds segment is expected to increase from 15 per cent in FY21 to 25 per cent by FY26.

The market has also received a major push from first-time buyers who account for nearly half of all pre-owned cars sold in India. The share of first-time buyers grew by 8-10 per cent during FY21 during the pandemic, primarily due to restricted availability of public transport, and increased need for personal mobility.

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“Increasing urbanisation and nuclearisation are expected to provide further impetus to the need for personal mobility, thereby accelerating the demand for pre-owned cars,” the report said.

Separately, the share of electric vehicles in new car sales is expected to reach 20 per cent by FY31. During this time, the share of EVs in pre-owned car sales is expected to be around 5 per cent.

“The outbreak of Covid-19 and the subsequent shutdowns have affected the market in both ways, wherein the first half of 2020, the sales were impacted by the lockdowns, but the market witnessed huge growth in the latter part of the year,” the report said.

After a supply crunch and increased demand during the first wave of the pandemic impacted stock levels across regions, mainly in the South and West where inventory levels came down to 30-35 days, from the typical 45-50 days, supply levels are slowly normalising in 2021.

This is owing to improved mobility, lesser restrictions, and lower reluctance to sell vehicles.

“As new car vehicle supply improves, pre-owned car supply is also increasing. Unlike other regions, the North was relatively shielded from the supply crunch, and was able to maintain near-steady inventory levels throughout the pandemic,” it said.

Compared to pre-Covid levels, the demand increased 20-30 per cent after the unlocking in CY2020. Demand improvement was more pronounced in the South, followed by the West, while demand growth was relatively lower in the East post lockdown. The pandemic also witnessed a sudden increase traction for cheaper, smaller, fuel-efficient cars, as per the study.

Emerging trends

The study also highlighted emerging trends in mobility, including the increase in preference for and the share of UVs in the pre-owned car market.

In line with their expanding share in the new car market, the share of UVs is increasing in the pre-owned car space, up from 18 per cent in FY18 to 20 per cent in FY21.

“Due to the intermittent launches, UVs are also seeing faster replacement cycles. Intermittent model launches and feature-rich competitively priced vehicles will aid the shift towards UVs in the pre-owned car space, whose share will cross 1/4th of the total market by FY26,” the report said.

The share of UVs is the highest among all regions in the East, at 35 per cent of the total market.

Based on regions, South lost ground to North vis-a-vis share of total sales of pre-owned cars. The share of the South dropped to 26 per cent from 28 per cent, while that of the North increased to 38 per cent from 35 per cent.

During FY21, vehicles aged 5-7 years dominated the market with 31 per cent share, followed by vehicles aged 8-10 years with a 29 per cent share. Among large cars, the 8-10 years age group dominated with a 40 per cent share, compared to only 24 per cent for 5-7 years.