With the current global financial meltdown having resulted in auto loan lenders clasping their purse strings tighter, the prospective new car buyers are seen driving towards the used car market.
Lenders, primarily private financial institutions, who offered 90% of on-road value as loan for new vehicles and 100% on ex-showroom basis, have now decreased their loan offering to 50-60% for new cars, said Pankaj Patel, vice-president (India) of auto portal Carazoo.com. This factor has forced the new car buyers to pay a huge sum as down payment, even while taking auto loans. Instead of this, he said, a larger chunk of customers have started buying used car for outright purchase that will also prevent the customers from availing credit.
In case of financing second-hand cars, the interest rates vary from 15% to 19%, depending on model of the vehicle. If the interest rates are higher, the customers are taking personnel loans at a lower interest from banks and buying used car on outright purchase, he added. The number of visitors searching for used car details posted on Carazoo website has increased to 70,000 after November 2008 from 60,000 visitors a month earlier, he added.
According to analysts, higher loan rates, increased fuel prices, an economic slow down, fears of retaining jobs and salary cuts have led the customers to turn towards used car market in recent months.
Maruti Suzuki chief general manager (sales support) Ravi Bhatia, who also heads the company?s pre-owned car division Maruti True Value, said the used car market in India has been growing steadily. Maruti True Value, India?s top organised pre-owned car brand, is expected to increase its sales to 1,20,000 units in the current fiscal from 1,03,000 cars sold in 2007-08. Already in the first nine months of the current fiscal, Maruti True Value sold 1,00,220 cars, he added. Currently, Maruti?s has extended its True Value service in its 304 outlets across the country and plans to increase it to its entire 444 outlets in the next two years, Bhatia added.
He also said the company has re-launched its True Value website this month to provide all information to a potential buyer or seller of a used car. Right from the evaluation to sale or purchase of used car would be done via the True Value website, he added. Also, the crisis has not affected the top-class segment (higher-income group). Referring to a JD Power study, he said the high-class customers sell their cars within five-years of purchase to buy a new model. This has increased vehicle supply in the used car market.
To utilise the opportunity, General Motors too is betting big on used car segment. P Balendran, vice-president of General Motors India said the company is all set to launch its used car division under the umbrella of Chevrolet OK within 10 days. Initially, he said, the company?s used car division will offer services in 10 cities that will be expanded to 25 cities by the end of this year. Chevrolet OK would be dealers-driven initiative that would provide customers with certified used-cars along with guarantee period. The cars would undergo a 114 point check and certification, he said. The Indian car market is unlikely to witness any great improvement in 2009, he added. ?The new cars sales could be flat or in negative this year, Hence, the used car market may gain marginally.?
According to Satya Prabhakar, founder and CEO of Sulekha.com, a portal that facilitates customer-to-customer used car business, said, ?Due to recession in the auto market, car manufacturers have come out with heavy discounts. The decline in the prices of new cars by 25% was mirrored in used car market as well. Here the prices fell close to 30%. The used car segment will register a growth of close to 30-40% in the coming months. On an average, around 3,500 cars are posted for sales every month on Sulekha.com. Of which, around 70-80% are converted into real business, he said.
In India, the equation between used and new car is 1:1, that is for every one new car bought, a used car is sold, said Vaishali Jajoo, an auto analyst attached to a Mumbai-based broking firm Angel Broking. In the US, the new and used car sales stood at 1:2 ratio and India has high potential to see tremendous growth in the used car segment in the years too come, she said.
Toyota Kirloskar Motor too has initiated used car business on pilot project basis recently under the umbrella of Toyota U-Trust. TKM?s spokesperson said, ?In partnership with our dealers, we currently have U-Trust operations in four locations across India?Delhi, Mumbai, Bangalore and Chennai. We would like to use U-Trust as a tool to encourage new car sales and we will look at expanding into more Indian cities as our business develops. According to Pankaj Patel of Carazoo, in 2009, the Indian car companies have lined up to launch 50 new models and variants that would further increase the supply in the used car market while expanding choices for potential used car buyers.
