The scrappage policy has unlocked significant growth potential in the used commercial vehicle (CV) segment, which is becoming more organised and structured. Accessibility is also increasing, driven by the industry’s expansion into tier-2 and tier-3 cities, along with the rise of online platforms, according to Karthikeyan Srinivasan, CEO of IndoStar Capital Finance Ltd, which provides financing for both new and used commercial vehicles.

Demand for medium and heavy CVs, along with a surge in light CVs, is fuelling growth in the used vehicle segment. This trend is heavily influenced by the government’s scrappage policy, which enforces a 15-year age limit on vehicles and the rising costs of new vehicles, which are pushing buyers towards used options.

With EMIs for new vehicles exceeding ₹1 lakh, the more affordable EMIs for used vehicles are driving a substantial increase in demand for BS-IV models. The transition from BS-IV to BS-VI has further boosted this demand due to the 25-30 per cent price difference between the two.

First-time buyers, attracted by the affordability and cost-effectiveness of used CVs, are also contributing to the surge. Used CVs offer the advantage of transporting the same volume of goods at a lower per-tonne cost. Maintenance expenses have decreased, thanks to improved engineering in BS-IV vehicles. Meanwhile, leading commercial vehicle manufacturers are intensifying their focus on the used CV segment through branded resale operations.

Additionally, the extended useful life of CVs now allows non-banking financial companies (NBFCs) to finance vehicles up to 12 years old.

Positive outlook

“Moving forward, we are anticipating steady growth in the used CV segment, with used vehicle EMIs becoming more affordable leading to a significant rise in demand for BS-IV. Replacement demand is expected to be favourable with certain replacement sales anticipated,” Srinivasan said in the company’s latest annual report.

While the outlook for the used CV market remains positive in FY2025, sales of new CVs during the first half are likely to remain flat compared with the same period in FY2024, largely due to general elections and related factors. However, stronger momentum in used CV sales is expected in the second half of FY2025. Financing for used CVs is projected to maintain its robust growth, supported by increased sales.

By FY2026, the company expects strong growth in the used CV market, driven by the entry of BS-VI vehicles. In FY2024, about 98 per cent of its total CV disbursements were for used CVs, and as of June 30, 2024, the company’s total AUM in CV financing stood at ₹6,323 crore.

IndoStar is expanding its retail operations with a focused emphasis on the used CV segment, particularly in tier-3 and tier-4 markets. On the product side, the strategy is shifting from heavy CVs to used medium and small CVs, aimed at achieving greater business granularity.

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