The only cheer in auto sector is in used cars market

Rachit Vats Posted online: Sunday, Feb 23, 2014 at 0000 hrs
Mumbai : Call it a sign of the times or India’s catch-up with the rest of the world, but the smell of new car leather is attracting lesser number of Indians each year, as they opt for used cars instead. New car sales are at an all-time low and discounts are at an all-time high, forcing the government to step in with excise duty cuts to perk up demand. But going by figures, used cars are clearly winning the race, with a 3 million average sales figure. Average size of the new cars market is 2.7 million. The growth figures are more stark—22-25% growth for used cars versus flat growth for new cars in the past three years.

So, is the Indian auto market headed the US way, where used cars sell thrice more than new cars? Nagendra Palle, CEO of Mahindra First Choice, the pre-owned business arm of utility vehicle maker Mahindra & Mahindra, says yes. “If you compare with mature markets around the world, India currently has very small volumes. The US market does about 44 million annual used car sales, about three times the new car sales. But the Indian market, though still in developing stages, is definitely heading that way,” he says.

“The current growth trend is expected to continue. The recent excise cut may impact business a little, bringing down prices while pushing up volumes. But whether new car sales go up or down, the used car business will see an upward trend. An added plus is that the business is getting more organised,” he adds.

Maruti, the country’s largest car manufacturer, is the best example of this trend. It is seeing a flattish growth in sales of its new cars, but its used cars business, Maruti True Value, is booming. During the April-January 2014 period, Maruti sold 8.5 lakh cars, a meagre 0.76% rise over the same period last year. However, in the used car business, the company has already sold 2.38 lakh units during the April-January 2014 period, and expects to cross the 2.52-lakh unit mark of 2012-13 fiscal.

Even Mahindra First Choice is looking to hit sales of 60,000 units with a growth of 35-40% over the previous fiscal. The company aims to cross the one lakh sales figure by the end of 2016-17.

Sales breed dealerships, and the company has aggressively ramped up its dealership network from 200 in January 2013 to 335 dealers at present. By FY2016 end, the aim is 500 dealerships. Maruti has 540 True Value outlets in over 340 cities, the second-largest network after its own network of new cars.

Another irony of this mismatch between new and used cars is the demand and supply conundrum. While many car makers have been halting production temporarily to correct growing inventories, the used cars business is struggling with a supply crunch. “The availability of used cars is quite poor at present. This is because the new cars segment is seeing a slowdown, which pushes up prices for used cars,” said Jagdish Khattar, founder of Carnation Auto, a multi-brand cars initiative that also deals in used cars.

But this issue could get sorted out as the sector gets more organised, with many web portals such as cartrade.com and biggaddi.com also coming into play. But that’s a story for another day. Right now, the used cars market is a long road of opportunities.