The Indian pre-owned car market is poised to outpace the new car market with a CAGR growth projection of 16 percent between FY2022-FY2027. This is according to the 6th annual edition of OLX Autos report in partnership with Crisil.
Growth in the pre-owned car market is fuelled by low car penetration, shift to digital, new car launches, shrinking replacement cycles and a favourable regulatory environment. Going forward, by the end of FY2023, the industry is expected to pick up pace, backed by a return to near-normalcy and improved consumer sentiment, increase in mobility and improved new vehicle supply.
The annual OLX-Crisil Auto Note 6 charts the trends for the used car market between FY2022-FY2027 and highlights that mirroring the trends in the new car market, UVs will become the fastest growing segment in pre-owned cars – growing at 3x, extending their market share in the pre-owned car segment to 32 percent by end of 2027 from 22 percent in 2022. This segmental shift towards UVs in the pre-owned car market will further help uplift the average price of a pre-owned car, leading to a 2.5x growth in the overall value of the pre-owned car market, over the next 5 years, to Rs 4.1 trillion in FY2027 from Rs 1.8 trillion in FY2022, growing at a CAGR of 19 percent.
The most popular UVs in the pre-owned car segment as per OLX platform data are Hyundai Creta, Maruti Brezza, Maruti Ertiga and Mahindra XUV500.
Amit Kumar, CEO, OLX India said, “There is a clear preference for pre-owned cars among consumers in larger towns, fuelled by an accelerated shift to digital channels – that offer higher convenience and build consumer trust. Urban markets drive the bulk of the demand for cars in India, With 37 percent of the Indian population living in urban areas by 2025, we will see a sharp rise in disposable incomes and affordability for discretionary spending on personal mobility.”
Growing at a CAGR of 16 percent, the pre-owned car market is expected to double in size to 8.2 million units in FY2027 from 4.1 million units in FY2022, increasing its lead by 1.7x over the new car market. Interestingly, during this period, the new car market is also expected to see healthy growth of 9-11% CAGR, reaching 4.8 – 5 million cars by FY2027.
Small cars continue to dominate the pre-owned segment commanding 58 percent of all cars, with Maruti maintaining its dominance. However by end of FY2027, it might contract marginally by 2 percent to 56 percent. The most popular small cars in the pre-owned segment are Maruti Baleno, Hyundai Elite i20, Renault KWID, Maruti Suzuki Dzire and Hyundai Grand i10.
The sedan pre-owned segment will see the most contraction, declining from 12 percent share in FY2022 to 7 percent in FY2027 as a result of the declining sales in the new car market, lack of new model launches and a shift in preference towards UVs. Honda City continues to be a favourite in this segment.
Factors supporting growth
The age of vehicles and prices continue to be key criteria while buying a pre-owned cars. While metro buyers prefer younger vehicles, price is the primary selection criterion in tier 2/3 cities.
One of the factors that support the growth of pre-owned cars is no doubt the digital platforms that have brought about more transparency in the system.
These platforms are expected to grow 4x to 12 percent by FY2027 with room for additional growth. The organised market (dealers with sales showrooms and workshops) will make up 40 percent and C2C channel will be 20 percentin FY2027. The unorganised market that comprises dealers without a basic sales set up and workshop will shrink by half to just 25 percent by FY2027.
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Favourable regulatory requirements will help propel the growth of the organized and digital sector. Moreover, the introduction of BH registrations will go a long way in simplifying inter-state vehicle transfer and will enable free transaction of cars across state borders.
The pre-owned car financing market is expected to grow at a CAGR of 25% from Rs 360 billion to Rs.1275 billion by FY2027. Expected premiumization in vehicles would drive up average vehicle prices and in turn average financing value per car in the pre-owned car market. Finance penetration (pre-owned cars financed out of total pre-owned cars sold) will grow significantly to 35-40% in FY2027 from 25- 30% in FY2022.
Tier II cities have been the growth engine for demand for pre-owned cars with Tier II cities making up nearly 40 percent of the demand. Hemal Thakkar, Director, CRISIL Research said, “Post pandemic, the Indian automobile sector has shown strong growth both in the new car as well as the pre-owned car market. Increased preference for personal mobility, easing supply-side constraints, increased discretionary and a shift in product mix are contributing towards the sector’s growth.”
The other key highlight of the study indicated that first time buyers typically form 40-45 percent of the overall customer base of the pre-owned car market and women buyers currently contribute nearly 10 percent in metro/tier 1 cities and less than 5 percent in tier 2/3 cities. The preference for automatic versions is also higher in metros.