FADA president bullish on used car market growth

by Mayank Dhingra 01 Jul 2021


Vinkesh Gulati: "New car dealers have been witnessing around 50-60 percent year-on-year growth in the used car domain."

The second wave of the Covid-19 pandemic has slowed down the pace of recovery of the Indian automobile sector, with new car sales dropping 64 percent on a month-on-month basis in May 2021, due to plant shutdowns and several state-wise lockdowns in place, which are getting lifted still. However, sales in June are expected to be better.

While segments like SUVs and executive sedans have remained relatively unscathed, the mass market hatchback segment has taken a hit, what with overall consumer sentiment still down. Passenger vehicle dealers have witnessed close to 15 percent cancellations in bookings, and deliveries were being put on hold.

While there is no doubt that Covid-19 has given a thrust to new car sales for the want of safer personal mobility, peoples' reduced spending power has also given an indirect push to the used car business, which is registering notable growth over the past year.

According to Vinkesh Gulati, president of the Federation of Automobile Dealers Associations (FADA), “New car dealers have been witnessing around 50-60 percent year-on-year growth in the used car domain, which would have gone to 100 percent, save for the second wave.”

“However, the kind of spurt seen in the used car segment last year is not there as of today. This is because there are at least 15-20 percent areas of the country which are still under lockdown. So, while it’s too early to measure growth, July is when we expect a comeback in demand once again.”

Gulati is bullish about the boom in the used car segment in the foreseeable future, particularly because the Indian used car market is still a long way from achieving maturity. What's more, the potential here is huge given that the used-car-to-new-car ratio in India is pegged at mere 1.5:1 as against 4.1:1 in case of developed markets such as the US. New car sales in India totalled 2.71 million units in FY2021, while used cars were far ahead at an estimated 3.9 million units as per the altest India Blue Book study.

As a result, even new car dealers are heavily banking upon this growth vertical. “As a new-car dealer, it is very important to play in the used car business as well,so as to convert the customers to opt for a new vehicle. Even though it is not a fixed-margin business per se, the return on investment is very high in used car retail,” Gulati explains.

“So, as an overall business where the current viability is poor due to the weak market sentiment, a used car vertical makes a lot of sense,”  remarks Gulati.

"I am hopeful that India will reach the US car market level in terms of the used-to-new-car sales ratio over the next five years," adds the FADA president.

Organised players see new potential in used cars
In a highly fragmented market where the unorganised players have dented the image of the used car business in the country, the increasing influx of organised players is being seen as an area of comfort.

“The number of organised players coming to the fore in this space has gone up tremendously over the past four-to-five years. Also, in case of the start-ups, they come along with a lot of cash to burn, thereby leading to better market reach and quicker turnaround times,” points out Gulati.

Clearly, the market dynamics are changing and so is the consumer preference, which is increasingly getting inclined towards organised players in the used-car segment like Cars24, Olx Autos, Truebil and Spinny. These companies offer assurance of complete vehicle inspection, non-accidental guarantee, fully-digital purchase option and up to seven-day buyback too.

“The organised segment is slated for growth as it brings transparency, confidence and convenience while buying a pre-owned car. Things such as RC transfer are taken care of, which are the major areas of grievance from a customer point of view,” says Gulati .

The Rs 200,000-700,000 price bracket is the one that witnesses the highest growth in the used car business. While hatchbacks and compact sedans retail between Rs 200,000 to Rs 500,000, compact SUVs thrive in the Rs 300,000 to Rs 600,000 range and for midsized SUVs, the price falls in the Rs 500,000 to Rs 800,000 bracket.

But with most vehicle owners holding on to their cars for longer durations due to the pandemic, the used car market is also facing an unprecedented challenge of a stark demand-supply mismatch. In a regular scenario, there would be an automatic inflow of around 20-30 used cars at a new car dealership which averages 100 units every month. “Covid has certainly impacted the supply,” Gulati signs off.

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