No slowdown blues for pre-owned car market

In contrast to the fall in sales in the new car market, India's pre-owned car market has witnessed a growth over the years.

BusinessLine spoke to various players like Maruti Suzuki True Value and Mahindra & Mahindra’s First Choice Wheels, and learnt that they have grown on yearly basis each month.

For instance, Maruti Suzuki True Value's sales has grown by six per cent between April-September this year, over the same period last year.

Positive growth

“The used cars market in India has seen a positive growth. In fact, last year close to 4 million used cars were sold. True Value registered around 19 per cent growth last year, whereas the used car market overall registered around 16 per cent growth,” Shashank Srivastava, Executive Director, Marketing and Sales, Maruti Suzuki India (MSIL), said.

Maruti True Value Network has 581 outlets in more than 250 cities across India, and Alto, WagonR and Swift are the most popular models over 55 per cent of total sales, he said.

Interestingly, when a customer buys a pre-owned car sold through a True Value outlet, the customer gets all the benefits of as buying a new car. They also get offers for loans from the banks, but due to higher interest rates, customers do not prefer buying used cars through loans. “Yes, the banks do provide loans on used cars. However, bank loan financing is around 20 per cent. This is because interest rates on used cars are higher compared to a new car,” Srivastava said.

Ashutosh Pandey, Chief Executive Officer, Mahindra First Choice Wheels said that the interest rate on used cars is higher than those on new cars by 300-400 basis points.

Also, since many used car buyers are first time customers with borderline credit scores, the finance penetration in used cars is about 17 per cent only (for buying new cars, finance penetration is more that 70 per cent). "This is one area of opportunity that will further improve used car sales if addressed," he said.

What makes used cars attractive?

Pandey said that over the past few years, the sales of used cars has increased steadily, and it is currently estimated to be 1.3 times the sales of new cars.

"This trend has continued in the current financial year as well, with used car numbers expected to grow by 10 per cent (from 4 million to 4.4 million units). The key reason for the same is the increase in the total cost of ownership of new cars, due to changes in insurance cost, taxes etc., used vehicles offer a far more compelling price-value proposition,” he said.

“In view of changes that are being spoken about, especially transition to BS-6 from April 2020, the price differential between new and used cars is likely to grow further, which is likely to result in continued growth in used car volumes, as well as some firming up of prices. The critical point to monitor would be the supply of used vehicles, since the industry is a supply constrained one,” Pandey explained.

Asked about discount rates in the used car market, and if they are also going at maximum rates to clear the inventories, Pandey said that used car dealers, such as franchisees of Mahindra First Choice Wheels, typically keep an inventory of 30-45 days, and that has not changed in the past few months. “In view of the festive season, Mahindra First Choice has been running promotions such as one-year free warranty with every car purchased, in addition to attractive offers on car loans. This is led to strong sales performance during October,” he said.

However, he also said that dealers do not get as much inventory financing to procure used cars, which impacts their ability to buy adequate inventory. Dealers are coping with this by deploying strategies such as ‘park-and-sell’, where customers who want to sell their vehicles leave it with dealers instead of selling it to them, and wait for the dealer to locate a buyer and close the sale.

He said there has been minimal impact of the slowdown on used vehicle sales in the first six months, adding that October has been very promising, with sales estimated to grow by 15 per cent over last year.

“Used car is a supply-constrained space; due to favourable price-value equation, there is more demand than can be serviced. One of the major sources of supply of used vehicle is trade-ins linked to the sales of new cars (25-30 per cent of new vehicles are sold with accompanying trade-ins). Slowdown in auto sector has resulted in lower trade-ins, though other sources of supply (repossessions, direct sales by customers at our outlets) remain strong,” Pandey said.

Rakesh Srivastava, Managing Director, Nissan India, also said that the company was running an exchange programme wherein customers can exchange their car of any brand for a new Nissan or Datsun products, including Nissan Kicks SUV and recently launched CVT models of Datsun GO.

Just the beginning

“The pre-owned market has been constantly growing with consumers seeing value in pre-owned vehicles. At 80 outlets of Nissan Intelligent Choice -- our preowned car business -- Nissan technical experts do a comprehensive 167-point quality check, also offering warranty for 24 months and three free inspections on Nissan and Datsun cars,” he said.

According to analysts also, there is a lot of room for growth in the pre-owned car market in India and there has been a lot of new players also come up in the recent past due to the same reason.

“In last few months, there have been so many players coming to used car market, which has also helped to enhance reach of buyers, as well as sellers. With car parc of around 25 million in India, there is enough scope of growth in used car business. We will just say it’s beginning for the used car market,” Puneet Gupta, Associate Director at IHS Markit, said.

COMMENT NOW