Diesel cars beat petrol peers in resale market

Written by Roudra Bhattacharya | New Delhi | Updated: Nov 15 2012, 09:36am hrs
If lower resale value of diesel car was one deterrent for you to buy one and choose a petrol car instead, there is reason you could change your decision. Prices of diesel cars are now rising at double the pace over their petrol variants in the used car market driven by high demand and a low supply of such models.

The economics seems to have changed over the last year on the widening gap between petrol and diesel fuel prices (petrol currently costs R21/litre more over diesel in Delhi). In the new car market, over 80% of demand is for the diesel variants of popular cars such as the Maruti Suzuki Swift and Hyundai Verna.

About 60% of used car buyers today are looking for diesel cars, but only 26% of our inventory is for such vehicles. The demand is high and supply low, pushing up the price of diesel cars by 21% on an average in the second quarter over the same period last year, said Umang Kumar, CEO and co-founder of Gaadi.com, a website that provides a platform for dealers and individuals to trade new and used cars.

The resale of diesel cars is up also because todays diesel engines are of much better quality and the maintenance of older cars is not as high as before, according to Yatin Chaddha, vice-president for operations at Mahindra First Choice Wheels.

For a person looking for a diesel car in the R3-4 lakh price bracket, there are more options in the used car market than the new car market, Chaddha said.

Though official numbers are not available because of the unorganised nature of the used car business, multiple players said that the market size is over 3 million cars a year growing at 5-6% a year (12% for organised players).

India, the used car market is 50% bigger than the new car market (2 million units in FY12). However, in most developed markets such as the US and Europe, the used car market is three times larger.

Another reason for price rise in the used car market is that the buying cycle for new cars is coming down. This means car owners are now selling cars after using it for about four years, versus about ten years earlier, according to Mahindra First Choice. A car with less miles and age thus faces a higher resale value.

The average age of cars sold on our website in the second quarter fell to three-and-a-half-years from four-years-and-two-months in the same period last year, Kumar said.

The best benefit is for those looking for luxury cars such as BMW and Mercedes-Benz. The depreciation on a brand new luxury car is 30-40% in the first two years versus 15-20% for other mass segment cars.

What we get in the market is usually what was new three to four years back. At the price of a new Santro, you can get a Honda City. The used car market gives you the best value at any price point, Chaddha said. The Mahindra Group firm expects to sell 46,000 cars this year, a growth of 35% over FY12.

However, this may still be a good time to buy a used petrol car as prices are low. Also, with petrol prices high, older petrol cars can easily be converted to CNG-powered vehicles without worrying about losing the manufacturers warranty (a worry for new petrol cars).