How India’s used car market is beating the economic slowdown

A lot of reasons are attributed to the ongoing slowdown in car sales in India, including the upcoming transition to BS-VI norms. But even amidst this slowdown, the used car market has found stable ground, writes Truebil's Shubh Bansal.

By: | Published: November 5, 2019 12:22 PM

Used car market in india

One of the biggest news doing rounds in the past few weeks has been that of the macro-slowdown faced by the automotive industry in India. After all, the auto industry is among the most significant contributors to the country’s GDP at more than 7%, generating direct and indirect employment for roughly 35 million people. With this industry witnessing the steepest of declines in over two decades, the situation is definitely grave. From the prevalent NBFC crisis and regulatory complications like BS6 implementation to the emergence of a sharing economy and the general overcrowding of cities—all these factors are driving this slump just as significantly. Moreover, the only certain thing at the moment is that the regulatory uncertainties will continue to affect the industry, further discouraging potential consumers from buying an automobile until it all settles down.

However, the pre-owned car market has remained largely unaffected by this industry slowdown. With this market getting increasingly formalized and consolidated, there has been a significantly higher growth in this space in the past few years when compared to the new automobile market. This positive growth trajectory indicates how consumer interest is rising in this space, especially considering the sketchy environment that the new auto segment is currently functioning in. Here is how the pre-owned space is not just tiding through but also thriving amidst the volatile industry conditions of today.

Auto industry slowdown: Barely an influencer

It is an undeniable fact that the above-mentioned factors have caused this massive slowdown. But its impact has stayed limited largely to the new automobile market, especially in metro cities. To put this into perspective, while the decline in demand has been as high as around 40% in Tier-I cities, it is relatively lower in Tier-II and III cities, at about 25%. And the reasons stated, for instance, that of increasing preference for cab aggregators like Uber and Ola, reflect how the millennial dominant consumers of today seek value for money over anything else. Therefore, a market like the pre-owned car space that was previously frowned upon and stigmatized by the previous generations which associated a new car with one’s social standing, has found greater appeal among modern-day millennial consumers. Value-seeking millennial and Indian families are steadily turning to pre-owned cars as resale value, technology, and safety reign as the top three considerations now.

Indian millennials have been observed to be driving the country’s consumption story, with the advent and rapid embracing of shared economy standing as a stellar example. And this trend is also reflected in the pre-owned cars market. Such has been the acceptance in the fact that the pre-owned car market in India is growing at a Y-o-Y rate of about 18-20%. The projected sales of pre-owned passenger cars in India, specifically, has ranged at 3.1 million, 3.5 million, and 4 million in the last three fiscal years. Armed with such growth, the sales in this segment are estimated to increase to as many as 4.4 million units this fiscal, indicating how the pre-owned space has barely faced any setback during this slowdown period.

Smaller towns and cities are also propelling this unprecedented growth of the pre-owned space. As stricter regulations, especially on emissions, are further changing consumer preferences in Tier-I cities and resulting in the discarding of older cars for new vehicles, these cities have become the major suppliers of pre-owned cars for Tier-II and III cities. And the demand-supply ratio is healthy as well—the demand for these cars from the smaller towns and cities has increased by almost 10% within the second half of this year itself. All these advances stand as a reflection of how the pre-owned car market has flourished and continues to flourish, even amidst the auto industry slowdown.

Long festive season: A great booster

The festive season is considered as one of the most auspicious times of the year by next to every market and their segments in a diverse and culturally-rich country like India, and the auto industry is as no exception to this phenomenon. The industry has, on an average, witnessed a considerable surge in sales during this period each year. However, while the potential for a revival of the new car segment remains meager, the pre-owned segment is bound to script a similar growth story this year as well. This is because the attractive discounts, deals, and offers rolled out by OEMs and major industry players in the new segment may still not find worth among the value-prioritizing consumers, whereas it will certainly give an impetus to the sales in the relatively much more financially, and generally, viable pre-owned market.

Women driving used car sales in India: Honda, Volkswagen, Nissan preferred brands

Essentially, even though the economy is relatively weak at present, the need for transportation is just as severe as it has always been. The only difference, perhaps, is the change of outlook towards and increasing confidence for the pre-owned car market. Value-seeking consumers of today are favoring the more lucrative option of purchasing a used vehicle over a new one. Armed with such positive developments, the pre-owned car space in India is thriving and will continue to script such a stellar growth story in the coming years.

Author: Shubh Bansal, Co-Founder, Truebil

Disclaimer: The views and opinions expressed in this article are solely those of the original author. These views and opinions do not represent those of The Indian Express Group or its employees.

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