Old is the new ‘new’. That clearly looks to be the overriding message in the passenger vehicle industry in India. As per the findings of a new study of the pre-owned car market, this industry is set to cross the 7-million sales milestone by FY2026.
The fifth OLX Auto used car study, conducted in association with CRISIL, estimates the size of the pre-owned car market in India and examines key trends and attitudes towards the sector.
While the new car industry has been feeling the heat of Covid-induced loss of sales over the past 18 months and sales in the festive season are also down, the used car industry is expected to clock a healthy growth rate of 15% in FY2022. As per the study, the prospects continue to be bright on the longer horizon, with a 12-14% CAGR expected over the next few years, taking the size of the market to more than 7 million vehicles by FY2026, from 3.8 million units in FY23021. In contrast, the new car market is expected to grow at a tepid 10% CAGR. With many people preferring socially-distanced personal mobility, during and because of the pandemic, the pre-owned car market is expected to continue to be a sunrise sector. In addition, the accelerating trend of digitalisation will lead to an increasing share of sales through digital classifieds, which will move to 25% from 15% currently. The share of organised players in the pre-owned market, including digital platform sales, will also see a 10% increase, from 20% currently to 30% in five years.
Key growth triggers
The pandemic, digitalisation, changing demographics and aspirations, first-time buyers, and availability of financing options are driving sustained growth in the pre-owned car segment.
Digital platforms are gaining traction due to their wide reach, accessibility and ability to provide a variety of options. The share of organized players, including digital platforms, to total industry sales is expected to grow to 30% by FY2026, from around 20% in FY2021. Additionally, the share of vehicle sales through the digital classifieds segment is expected to increase from 15% in FY2021 to 25% by FY2026.
The market has also received a boost from first-time buyers who account for nearly half of all pre-owned cars sold in India. Their share has expanded by 8-10% during FY2021 in the backdrop of the pandemic, primarily due to restricted availability of public transport, and increased need for personal mobility.
Another upcoming trend is that the share of EVs in new car sales is expected to reach 20% by FY2031, at which point in time, the share of EVs in pre-owned car sales is expected to be around 5%.
Market, consumer behaviour findings
The study outlines the impact of the pandemic on market and consumer behaviour. It says that with the emergence of Ola and Uber, many customers had deferred purchasing personal vehicles, especially in metro cities. However, the pandemic brought the interest back on the need for owning personal vehicles, and this trend is unlikely to abate in the near term.
During the first wave of the pandemic, supply crunch and increased demand impacted pre-owned car stock levels across regions, mainly in South and West India where inventory levels came down to 30-35 days, from the typical 45-50 days. Supply levels are slowly normalising in 2021, with improved mobility, lesser restrictions, and lower reluctance to sell vehicles. As new car vehicle supply improves, pre-owned car supply is also increasing. Unlike other regions, the North was relatively shielded from the supply crunch, and was able to maintain near-steady inventory levels throughout the pandemic
Given the consistent rise in fuel prices, understandably there was increased traction for cheaper, smaller, fuel-efficient cars.
Spotlight moving towards UVs
The study also throws light on emerging trends in mobility, such as the rise in preference for and the share of UVs in the pre-owned car market. In line with their expanding share in the new car market, share of UVs is fast increasing – up from 18% in FY2018 to 20% in FY2021.
Due to speedy new model launches, UVs are also seeing faster replacement cycles. Intermittent model launches and feature-rich competitively priced vehicles will aid the shift towards UVs in the pre-owned car space, whose share will cross one-fourth of the total market by FY2026. The share of UVs is the highest among all regions in the East, at 35% of the total market.
In terms of regional mix, the South lost ground to North as regards share of total sales of pre-owned cars. The share of the South dropped to 26% from 28%, while that of the North increased to 38% from 35%.
During FY2021, vehicles aged 5-7 years dominated the market with a 31% share, followed by 8-10 year-old vehicles with a 29% share. Among large cars, the 8-10 years age-group dominated with a 40% share, compared to only 24% for 5-7 years.
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