Used car sales in top gear as economy slows down, Indian rupee sputters

Written by Sandeep Singh | New Delhi | Updated: Sep 6 2013, 16:36pm hrs
Used carsSlowdown and the fall in rupee have erased the dividing line between those who scouted for a new car and those willing to settle for a well maintained used car.
On Boulevard Road in West Delhi, prospective car buyers are given an unusual tour of choices by the salesmen these days. Among the models lined up are ones that have been used as well. Many customers coming to buy a new car inevitably stop at his used car showroom too, located right next door, says Ajay Saxena, GM of Rana Motors.

In many cases, the customer ends up buying a used car if he gets one in good condition which is priced Rs 1-2 lakh lower than a new car. In some cases the customer says the savings from buying a used car can fund his fuel consumption for three years, Saxena said.

Used car business getting traction in India: JD Power Asia study

The trend, it seems, is not a blip or limited to a particular market. The economic slowdown and the steep fall in the value of the Indian rupee have erased the dividing line between those who scouted for a new car and those willing to settle for a well maintained used car. The depreciation of the rupee, among others, has also meant an increase in input costs, leading to prices of cars being raised even as demand was falling.

As a result, for the first time in the history of the Indian automobile market, the used car segment has witnessed a 22-25 per cent rise in sales during April-July 2013 as against a 9.7 per cent decline in new car sales in the same period, industry experts said.

According to one estimate, the used car market is expected to see sales of between 28 lakh and 30 lakh units this year, with the organised sector accounting for about 20 per cent of the market share.

The economics are clear, says Saxena, as he shuffles between his Maruti Suzuki showroom and the True Value dealership next door. Between April and July, we have seen our used car sales grow by around 20 per cent.

Business seems to be brisker in some pockets. For instance, Deepak Dogra, sales manager at Competent Automobiles in Gurgaon, says, The growth can be seen from the fact that we are selling one used car for every new car we sell.

Mahindra First Choice is expecting its sales for the year to be anywhere between 60,000 and 65,000 units, up from 46,000 units last year. Anticipating a jump in demand for used cars, Mahindra & Mahindra Ltd has increased its dealer network significantly over the last one year from 180 in August 2012 to 287 now.

Impact of the economy is a lot more muted on the used car business, says Nagendra Palle, CEO of Mahindra First Choice. Between May and August, his business has jumped 40 per cent to 17,000 units from 12,000 in the same period a year ago.

Conversely, the rupee fell by 25 per cent against the dollar during the same period. Also, over the last couple of months, GM and Mahindra & Mahindra raised prices by up to Rs 10,000, contributing to a general feeling that new vehicles were getting expensive. Other manufacturers are expected to follow suit.

In a tough economic environment for new cars, used car prices are holding and sales are robust, Mahindra & Mahindra chairman Anand Mahindra tweeted on Monday.

Auto Terrace, Hondas arm that sells pre-owned cars, saw 2012-13 sales jump 58 per cent. An official associated with Honda-Auto Terrace said demand is robust and the company is expecting to double its sales this year.

The official said prices of petrol cars have begun to harden in the used car segment. The residual price of a three-year-old petrol car had dipped from 64 per cent in 2010 to 54 per cent in 2012. It has, however, gone up to 61 per cent in 2013, the official said.

Although players such as Mahindra, Maruti and Honda feel there is lots of room for them to grow, industry insiders said as new car prices rise and sales fall, there will be some supply constraint in the used car segment too and that will lead to a hardening in their prices as well.