Used cars market gaining during COVID-19 pandemic: Prime reasons besides lower prices

Used car sales have registered healthy growth in India during times of the coronavirus pandemic, and if recent statistics are to go by, this trend will only move northward.

By:July 29, 2020 1:06 PM
used car marketImage for representational purpose only

The COVID-19 pandemic has turned the world on its head bringing businesses to grinding halt plunging revenues, displacing workforce, sending stock market nose-diving and leaving gaping holes in economies, worldwide. Job losses impacting the income of millions of working personnel have left them with lesser purchasing power. As the country limps out of lockdown and the workforce gets back to their workplaces, mobility will remain as relevant as ever.

However, the automobile industry has taken its worst hit as those looking to buy or change their car have put on hold the decision owing to the effects the pandemic has had on income. But the silver lining to the dark cloud is that the demand for pre-owned cars has witnessed an uptick amidst the pandemic.

If the initial statistics are anything to go by, this trend is likely to move northward. According to statistics released by the Society of Indian Automobile Manufacturers’ (SIAM), pre-owned vehicle segment that accounts for 18% of the market share, registered estimated sales of 4.4 million units, whereas the new passenger vehicle sales in FY 20 stood at 2,775,679 units, dipping below the 3 million sales unit mark for the first time since FY17. This clearly indicates the growing acceptance of pre-owned cars.

At the same time, estimates show that the Indian pre-owned car segment is less than even 10% in size to that of the used car industry in the US, yet growing at a CAGR of 15% in the last five years. So, what explains the preference for used cars? Let us deep-dive into this and under this shift.

Pricing and shift in consumer demand and perception

Indians are predominantly price-conscious consumers. Owning a brand new car comes with its baggage of elaborate buying process, investing time in evaluating multiple brands, assessing the price-value equation, to name a few. The Bharat Stage VI vehicles have pushed up the price of cars. On the contrary, pre-owned cars offer a wide choice of brands to choose from and are comparatively cheaper vis-à-vis new cars.

Depreciation is another factor for the shift in preference towards pre-owned cars. Typically, cars have a high depreciation rate – sometimes even 30% in the very first year itself. Such a high depreciation rate on a high-value car has an impact on the mind of the customer, which makes buying a used car a better value for money option. Coupled with this, there is also a growing societal acceptance for pre-owned cars. They are bought with equal fervour and happiness as a new car.

Reduced period of ownership of cars

Owners typically sell their cars when it is 6-7 years old; whereas buyers prefer to buy a 4-year-old car. With newer models of cars being introduced at a faster pace, the need to own the latest models, ownership period has reduced to 4 years which augurs well for the buyer. According to statistics, the ownership period is expected to dip further to three and a half years which will further give momentum to more people looking to buy pre-owned cars.

Advent of organized players in this space

The pre-owned car space has traditionally been an unorganized sector with numerous players operating from a garage. The rising popularity of pre-owned cars has witnessed many organized players entering this space. According to estimates, the organized sector in this space stands at 18%, up from 15% about 2/3 years ago.

Also read: How car rental could be your new safety move against COVID-19

Growth of online presence

With more and more pre-owned car showrooms having an online presence, the search for the right kind of car within the budget is today at the tip of the finger saving time, energy and money for the buyer.

Increased demand for used luxury cars

While on the one hand, the ownership periods of normal cars have come down from 6 years to 4 years, the ownership period of luxury cars has witnessed a further dip. With a little effort, patience and careful evaluation, buyers will be able to lay their hands on a well-maintained luxury car at almost the same price of a new sedan.

With the pandemic likely to be still around for the foreseeable future, the economy and industries getting back to the pre-COVID stage is going to be an equally long haul one and therefore organization’s revenues and workforce income getting back to pre-COVID will be pushed further. Needless to say, pre-owned cars step in to satiate the desire of individuals to own a car.

Author: Sumit Garg, Co-Founder & Managing Director, Luxury Ride

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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