Used-car market on slow gear after demonetisation

Ramanathan (name changed), a Chennai resident, put up his well-maintained 2013 Maruti Swift (petrol version), which has done about 40,000 km, for sale three months ago as he wanted to upgrade to a mid-size sedan or a SUV.

He was hoping to get it sold for about ₹5.5 lakh, but prospective customers were asking for a huge cut in price.

The used car market has been one of the worst-affected segments post-demonetisation. The industry is staring at a bleak outlook over the near-term due to continuing restrictions on cash withdrawals.

Demonetisation, which was announced in early November, crippled secondhand car market in India immediately as most of the transactions happen here through cash and informal borrowings.

Because of severe cash crunch, sales plummeted. With demonetisation affecting new vehicle retail volumes as well, the volume of “exchanged” units also diminished, leading to a supply crunch in the industry. This constraint also affects the overall industry volume.

According to industry analysts, the impact of demonetisation was severe in North, Central and Eastern regions of the country.

“As an immediate effect, there was a drop of about 40 per cent in our volumes sold through our 1,000-plus outlets in nearly 500 towns pan-India,” Nagendra Palle, CEO, Mahindra First Choice Wheels, a leading organised player in the second hand car market in the country, told BusinessLine .

“The immediate effect was severe. Till November 20, there was hardly any customer. There was a drop of at least 30 per cent in sales due to the effect of demonetisation, said a senior official of pre-owned car brand of a leading car maker,” he said.

While cash crunch turned away some segment of buyers, other people who wanted to transact through financing mode had difficulties in getting documents from banks. There is also delay in completing the transaction. So, there is an uncertainty among the first time used car buyers, he added.

According to Crisil Research, used car market has grown by about 15 per cent in the past three years. In 2015-16, about 4.6 million used cars were sold in the country and it was expected to post a growth of nine per cent during this fiscal. But currency ban has pulled down the prospects.

Meanwhile, January provided some respite with improvements in transactions. With several lenders offering 100 per cent financing for the purchases, it has eased the pressures to some extent.

With most of the bankers indicating that cash crunch would ease only by the end of this quarter, transactions in the used car market are likely to stay subdued during the period.

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