Encouraging demand for used cars, but challenging year for auto companies: CEO, Mahindra First Choice Wheels

Abishek Law | | Updated on: Jul 28, 2020

The demand for used cars has been “encouraging” since the the national ‘Unlocking’ began with maximum queries coming for the ₹3 lakh-5 lakh price points, said Ashutosh Pandey, CEO, Mahindra First Choice Wheels Ltd.

The fiscal will continue to be “challenging year” for auto companies with used car sales witnessing a 10-12 per cent annual drop. Organised players though will gain market share.

Pandey said that transactions are back at 70 per cent levels in June and early July and customers prefer four-wheelers across categories like hatchbacks or entry level SUVs. Interestingly, smaller towns continue to drive queries for the company. Nearly 70-75 per of its June volume came from Tier-II, Tier-III and Tier-IV markets.

There was certainly a pent-up demand in the initial days which has now been replaced with the need to own a vehicle due to the uncertainties around safety of public transport and other Covid-19-induced health concerns. Initial trends or customer hits on its group website also indicated the same. The website drew around 10-12 million unique views.

“FY21 looks like a challenging year and we anticipate approximately 3.5-3.8 million vehicles being sold this year as against the 4.5 million-odd sold in FY20. We have seen encouraging demand and rising queries on four-wheelers since Unlocking,” he told BusinessLine .

Mahindra First Choice Wheels, the pre-owned vehicles arm of the Mahindra Group, reported income worth ₹373 crore (fee-based) in FY20 with “positive EBITDA margins”.

Consumer Downtrading

Not much downtrading in models is happening at the moment but the possibility cannot be ruled out if the pandemic and its impacts are prolonged. Currently, customers are looking at lower-priced options within the same category or are willing to opt for older but “tried and tested models”.

For example, SUVs remain a favorite but there are more queries and demand for entry level SUVs rather than higher priced ones. Similarly, instead of a three-year old Honda City people are opting for a five-six year old vehicle, but of the same make (Honda City).

“If the pandemic prolongs, downtrading will happen as budgets get stretched,” said Pandey, adding that people graduating from two-wheelers to four wheelers still form the largest chunk of 70 per cent buyers.

In India, the used car market is 1.5 times the new car market; while in some mature markets, this could be as high as 2.7 -3.5.

Shortage of Supply

Pandey acknowledges that there is a shortage of supply in the used car market as people continue to be reluctant to sell their existing vehicles. Another supply source is repossession. With loan moratoriums being extended till August, the supply remains stretched.

“We presume the supplies will increase September onwards once the moratorium period gets over,” he added.

Published on July 27, 2020
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