Decline in the replacement purchase of passenger vehicles has led to a supply-side problem in the pre-owned market, which is hitting sales despite the demand remaining strong. For instance, enquiries on the Maruti Suzuki True Value sales channel have more than doubled from FY18 to FY21, but actual sales have not increased commensurately. In fact, from FY20 to FY21, sales of pre-owned cars via True Value dropped by 34%, from 4,18,900 units to 2,74,891 units.
Data shared by the company shows that, in FY18, 31.08% of enquiries used to get converted to sales, but in FY21 and H1FY22 this dropped to about 11%.
Auto analysts FE talked to said that this is reflective of the changing consumer pattern during the Covid-19 pandemic. “It has been seen that during the pandemic people are holding onto their cars a little longer than pre-pandemic days,” an analyst told FE.
Shashank Srivastava, senior executive director, Marketing & Sales, Maruti Suzuki India, told FE that, during the first few months of the pandemic, a section of the population moved from public transport and ride sharing to personal mobility, and so the demand for personal mobility increased. “This got reflected in the increasing enquiries for both new and pre-owned cars,” he said.
In FY21, pre-owned car enquiries at True Value rose by 6% over FY20, and yet sales dropped because the supply side has been impacted, Srivastava said. “The average holding period of a pre-owned car customer before the pandemic was 8.2 years, which has now increased to 9.4 years. This points to the fact that people are not selling their old cars to upgrade to new cars as fast as they used to before the pandemic.”
As far as replacement buying is concerned, i.e. selling an old car to buy a new car, it has gone down from 26% before the pandemic to 19% now. “This data also supports the theory that people are holding onto their existing cars for a little longer than usual,” Srivastava said.
Since foraying into the pre-owned car market in 2001, True Value now has 550 outlets across 268 cities, and has retailed over 40 lakh cars, most of these offline—i.e. buyers visiting the outlets to purchase cars. During the pandemic, however, because of social distancing norms and Maruti Suzuki enhancing its digital presence, there was a massive increase in online enquiries, which, at True Value, now contribute to 72% of total enquiries.
Prospective customers who enquire online are also serious buyers, Srivastava said. “As far as conversion rate is concerned, i.e. how many enquiries get converted into actual sales, data shows that while the offline buyer conversion rate is 13%, the online buyer conversion rate is about 10%, and so there is not much of a difference. We have seen that a pre-owned car buyer is usually somebody who ‘needs’ a car.”
The domestic pre-owned car market is highly fragmented. The various selling options are customer-to-customer, unorganised/independent pre-owned car dealers, semi-organised pre-owned car players, and organised (Maruti Suzuki True Value, Mahindra First Choice, H Promise, etc, and online-plus-offline players such as OLX, Cars24 and Spinny).
True Value conversion rate
Period Car enquires Car sales
FY18 11,39,000 3,54,000 (31.08% of enquiries)
FY19 18,69,000 4,22,900 (22.63% of enquiries)
FY20 22,75,000 4,18,900 (18.41% of enquiries)
FY21 24,11,000 2,74,891 units (11.45% of enquiries)
H1FY22 14,22,000 1,58,324 units (11.13% of enquiries)
(Some figures have been rounded off)