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Volkswagen bets big on used car market in India

Ayushi Kar Mumbai | Updated on July 02, 2021

FILE PHOTO: Technicians work in the final inspection line of German carmaker Volkswagen's electric ID. 3 car in Dresden, Germany   -  REUTERS

Rural and smaller towns are likely to enjoy a bigger share of the demand, says report


Used car market space is expected to sell 8.2 million units per year by FY25, with a compound annual growth rate of 21 per cent, according to a study commissioned by Volkswagen Passenger Cars India, in collaboration with research firm Frost and Sullivan.

The market space is also likely to pivot towards an increased market share for the organised sector from 25 per cent to 45 per cent in the 2025 fiscal. Furthermore, rural and tier-2 and -3 cities are likely to enjoy a bigger share of demand for used cars due to stringent emission norms in tier-1 cities as well as an increase in aspirational buying by the rural sector, the report said.

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Urban demand for used cars is likely to decrease from 45 per cent market share to 30 per cent market share in the 2025 fiscal year. For Volkswagen Passenger Cars (VPC), which has pushed heavily for investment into the used car space, this report further validates their intuition regarding the promise the used car market holds for OEMs across India.

Ashish Gupta, Brand Director for VPC told BusinessLine that the used car business has been doubling for VPC, for the past few fiscal years. Presently enjoying a 2.5 per cent market share, in the organised used car market, the almost doubling of the organised sector market share for used cars bodes well for VPC, according to Gupta.

Used cars are usually the first cars for buyers entering into the private car market, thus, “the aim for Volkswagen is to be with the customer, from the very beginning of their mobility journey”. “The immediate benefits to the revenue by the sale of used cars under Volkswagen dealerships are not as much as the value we will generate by customer acquisition for the purchase of their second car, which is normally a new car model,” he said.

Also read: Covid-19 hits passenger vehicle exports

Other attractions for VPC include revenue generated by selling car servicing, car parts, accessories etc. The main beneficiaries of the increase in market share for organised sectors would be the dealerships. However, according to Gupta, “for some major dealerships, as much as 40 per cent of their business comes from the used car space, sale of used car also has better margins for dealerships as the cost of holding inventory is substantially low.”

Shift to the organised space can be explained by the increasing demand for reliability and transparency that customers want for the cars they buy. In fact, according to the report commissioned by VPS and Frost and Sullivan, around 15-20 per cent of unorganised dealerships have also started selling on online platforms to increase transparency.

Covid has also further burgeoned the already surging used car demand, where personal mobility has become indispensable.

Also read: Indian automotive sector: From resilience to resurgence

The report also finds that used car finance penetration is expected to increase by the currently held 21 per cent, to become 35 per cent by 2025, with financial penetration increasing in non-metros from 48 per cent to 55 per cent by 2025. Volkswagen is looking to partner with other financial institutions, to capitalise on this financial penetration and help buyers secure loans to purchase these cars.

Presently, India’s used car ratio to new car ratio is almost 1.5, while it is 2.8 for the US and 4.1 for the UK. These are the numbers to aspire towards according to Gupta.

Published on June 16, 2021

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