What’s driving used car sales?

Pandemic, chip shortage, desire for upward mobility are driving demand.

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By: Niraj Singh

India’s used car market is logging a greater growth percentage than new cars. Going by a Frost & Sullivan report, sales of pre-owned cars were estimated at 3.8 million units against 2.6 million for new vehicles in FY21. This gap is expected to increase to 8.2 million used cars versus 3.9 million new vehicles by FY25.

The study reveals that first-time buyers accounted for 64% of these used car owners. This is partly because people wish to hone their driving skills via used cars first before graduating to new ones. Despite being divided between organized, partly organized, unorganized and customer-to-customer groups, India’s used car segment has been growing continuously.

But what is propelling the growth of the used car market? Multiple drivers are behind this, and these include economic drivers, the need for personal mobility as people seek to avoid public transport and shared mobility due to health concerns, as well as the desire for upward mobility, among other reasons.

All four segments of India’s used car market have been contributing to growing sales. In the organized sector, these include traditional auto companies and start-ups, all of which have been recording steady sales growth. The affordability and easy availability of used cars is another big draw for consumers, particularly first-time buyers, who prefer polishing driving skills on pre-owned vehicles before graduating to the purchase of new ones.

The other driver is a greater supply of pre-owned vehicles. Since many white-collar employees who own more than one car are still working from home, they prefer to sell their second vehicle given the limited usage. The new Vehicle Scrappage Policy has also led to greater sales of used cars as those who were forced to sell their old vehicles have preferred to opt for pre-owned cars as these offer more value for money compared to new ones.

Owners have also reduced their duration of new car ownership to 3-4 years, which was higher earlier. The ongoing shortage of semiconductors has severely affected automakers, and deliveries of new cars are being delayed for months because of supply constraints. Naturally, people looking for personal mobility at the earliest are opting for second-hand cars. Younger cohorts of aspiring car buyers are also preferring to go in for pre-owned cars rather than waiting to purchase a new vehicle.

Besides these, other reasons for rising sales of used cars are the trust and transparency that online retail players have fostered among prospective buyers through better deals and allied benefits. For example, a full-stack used car platform permits prospective purchasers a 360-degree view of all the listed vehicles on its portal, along with doorstep inspection and at-home test drives. A wide range of vehicles is also offered for selection.

New-age used car retailers also go the extra mile by undertaking comprehensive checks of each vehicle before listing them online for sale. Therefore, every vehicle is subjected to a 200-point evaluation to ensure it is completely roadworthy and safe before being listed online.

Buyers are also provided one-year after-sales warranties on used cars to take care of any post-sales problems. This includes a fixed-duration money-back guarantee, a fixed-price assurance, and doorstep inspection of cars. Buyers are provided with a complete history of each selected vehicle, which includes maintenance and repair details. Thereafter, buyers are assisted with the relevant documentation and transfer of car ownership. In case buyers wish to take a vehicle loan, they are helped with the modalities and the loan is facilitated through a suitable private or public sector lender.

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Another deal clincher is that buyers are offered a realistic assessment of a car’s condition along with value-for-money pricing. On many occasions, buyers receive good deals when cars in excellent condition that were used only for a few months are sold by their original owners simply because they wish to upgrade to a new vehicle.

A report from Mordor Intelligence states that India’s used car market was pegged at $27 billion in 2020. At a CAGR of 15%, this is expected to touch $50 billion by 2026. There is little doubt that the market is poised to notch up more major milestones in the years ahead.

About the author: The author is founder & CEO, Spinny

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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First published on: 26-03-2022 at 09:47 IST