Used car sales is expected to grow at a compounded annual growth rate (CAGR) of 11 per cent to record estimated sales of 8.3 million units by FY2026, according to consulting firm RedSeer.
India’s used car market witnessed a heightened activity this year, as the global pandemic pushed people to opt for used cars in search of personal mobility options. Other factors leading to the growth in this segment include a reduced period of car ownership among the millennial demographic, and the transition from BS-IV to BS-VI, GST rates differential on the purchase of used cars versus that of new cars, among others.
This is also reflected in the growing investor interest in this segment. In 2021 alone, three start-ups in the space, Droom, Cardekho, and Spinny have entered the unicorn club ($1 billion) along with existing unicorn Cars24 almost doubling its valuation to $3.3 billion. This year also saw the entry of mobility major Ola into the used car space with the launch of Ola Cars.
RedSeer noted that data monetisation, in-vehicle connectivity, subscriptions, rental, charging, and long-term maintenance packages are expected to command a large share in the company’s profit pool. Even though the segment is booming, the used car market comes with its own challenges. The segment has 30,000 dealers making it a very fragmented space and of these, 45 per cent are commission agents or brokers.
According to RedSeer, most of these dealers have no physical space for business, and operations are bound to be unorganised. And, unorganised dealers have low productivity as they face price-led competition from unorganised brokers or customer-to-customer transactions. However, digital seems to be solving these gaps in the market, with key players adopting digital best practices and incorporating them effectively in their dealership models.
The consulting firm estimates that most new car dealerships are connected online through the OEM online network and benefit from targeted leads. Of the 30,000 used car dealerships, at least 4,000 are said to be spending consistently on online auto portals.