DeMon eats up 6% sales of 3.6m pre-owned vehicle market: study

In its second edition of the ‘Indian Pre-owned Car Market Report’, released by IndianBlueBook (IBB), the pricing and analytics platform for new and pre-owned vehicles in India, says the 3.6 million strong sales in the pre-owned vehicles market grew 9 percent and lost around 6 percent (200,000 vehicles) of its potential growth due to demonetisation. 

The automobile industry had jolted to three major issues in the past year in the form of – Demonetisation in November 2016, BS III to BS IV transition in March 2017, and the Goods and Services Tax (GST) regime in July 2017. 

Highlights of the report 

India is expected to be amongst the top five automotive markets in the world by 2020, with the pre-owned car market becoming an important enabler for new car industry growth; 25-28 percent of all new car business will be accompanied by a trade-in (exchange). 

The Pre-owned car channels is highly fragmented with four primary market segment, organised making up for 15 percent market share with an average volume per dealer at 17 vehicles per month. Semi-organised consisting of 36 market share and selling an average 9 vehicles per month per dealer. The unorganised  sector makes up for 17 percent of market share along with retail sales of 4 vehicles per month per dealer, while the consumer to consumer (C2C) making up for the remaining 32 percent of market. 

The pre-owned car industry accounts for 3.6 million vehicle sales, grew 9 percent in 2017 YoY, the expected market size was to touch 3.8 million vehicles that saw demonetisation hitting the industry with almost 6 percent of reduction in the forecast. 

On the other hand, the unorganised industry is witnessing a rapid transition towards the organised segment that helped the organised and semi-organised segment grow by 36 percent and 12 percent in volume terms respectively, while the C2C and unorganised segment saw almost flat growth. The report expects the organised dealer count across India to witness one of its fastest growth at 23 percent YoY over the next few years. 

While the GST has been a welcome move by industry players and all stakeholders, the new tax regime has put a higher burden on the dealer network with almost 70 percent of states witnessing a higher tax rate post-GST in compared to the pre-GST structure.  The current tax scenario is expected to give some fillip to C2C transactions. On the other hand long-term scenario prediction expected prices to adjust and will accommodate new tax structure that will be helped by expected Regional Transport Offices (RTO) reforms. 

Despite the higher tax burden, the organised segment of the pre-owned car business saw faster growth at the expense of the semi-organised and unorganised segment. Consumers opting for finance options to purchase the vehicles increasing by almost 20 percent, with the share of people opting for finance higher in metros compared to those in non-metros.
Incidentally, tax liability of dealers in the segment in around 70 percent of states will double. 

According to the study, the share of car sales in urban areas accounted for almost 45 percent of total sales, while the remaining 55 percent came from non-urban areas. Along with the younger population making up for the bulk of purchases in metro compared to non-metro. The report highlights the demand for diesel vehicles has come down substantially in metros, while the consumers in smaller town preferring diesel vehicles with a strong liking for utility vehicles (UVs) or small cars.