India’s used car market races past 4 million units in FY2019, may cross 7m by FY2022

by Sumantra B Barooah 03 May 2019


It's a sunny season for the Indian used car market, even as the weather continues to be gloomy in the new car market. The pre-owned car market crossed the 4 million-unit sales mark in FY2019. That translates to 1.2X the size of the new car market. A key growth driver has been the downward revision of GST rate on used cars from 28 percent to 12-18 percent.  

As the auto industry enters the BS VI era from April 2020, the value proposition of the used car can grow stronger as new cars become pricier due to additional technology costs. Another development of Maruti Suzuki's decision to exit the diesel car segment by April 2020 could also enhance the demand for compact diesel cars in the used car market unless there is a backlash against diesel, according to Ashutosh Pandey, MD and CEO of Mahindra First Choice Wheels (MFCW), one of the key organised players in the used car industry.

MFCW CEO Ashutosh Pandey: Maruti Suzuki's decision to exit the diesel car segment by April 2020 could also enhance the demand for compact diesel cars in the used car market unless there is a backlash against diesel.

This industry continues to be largely unorganised but the share of the organised players is on the rise. According to the 2019 edition of MFCW's Indian Blue Book, the share of organised players in the Indian used car market grew from 10 percent in FY2011 to 18 percent in FY2019.

MFCW, which registered 40 percent revenue growth over Rs 148 crore in FY2019, is now aiming at 60-70 percent growth in FY2020. The company, which sold 250,000 vehicles during FY2019, expects to grow the figure to 350,000 units during this financial year. Towards achieving this target, the company plans to expand its network strength from the current 1,100 outlets to 1,700 outlets by March 2020. Out of that, 11 are planned to be Edition outlets which retail pre-owned luxury vehicles.

Like the new car industry, the used car industry has also seen some reduction in footprint across the country. Most of them are unorganised players. The organised dealers continue to grow at a rate of 19 percent YoY, according to the Indian Blue Book. It says that the new-age digital companies in the used car market attracted investments of over Rs 5,000 crore over the past four years.

The Indian used car market sees 62 percent of customers buy a vehicle for its affordability, 23 percent of customers buy for short-distance travel and 15 percent are 'value seekers', according to findings of a survey by consulting firm PremonAsia, published in the Indian Blue Book.

The survey conducted among 1,500 respondents in 26 cities also found that there's a gap between the age of cars sold and bought in the used car market. While customers prefer to buy cars aged 5 years or below, the market sees more sellers of cars above 5 years of age. As a result, the majority of the cars get sold at zero profit or sometimes at a loss, says Pandey. Fifty percent of the used car market comprises hatchbacks, 25 percent sedans, and the rest comes from the C and higher-segment models.

From two to four wheels
Upgradation from a two-wheeler was found to be the topmost reason for demand for used cars. Inability to afford a new car comes close. The average selling price of a used car stands at Rs 301,000 and Rs 370,000 lakh is the average buying price. "There is a 15-20 percent margin end-to-end in the used car ecosystem," says Pandey.

As the market evolves, it is expected to grow significantly and get more organised too. The used car industry is projected to sell 6.7-7.2 million cars annually by FY2022 and the share of organised players is expected to growth from the current 18 percent to 30 percent. The pre-owned car industry currently has an annual turnover of Rs 20,000 crore. By FY2022, the pre-owned and associated industry is projected to be valued at Rs 50,000 crore.

However, there are some challenges to be overcome. Standardisation of dealership experience and having a more organised structure need to be achieved. Fair pricing mechanism is another. Addressing these three will positively impact customer confidence. Availability of finance is another. Currently, only around 17 percent of used cars are financed. In the new car market that figure changes to 70-75 percent. "These are the challenges we face, which incidentally are quite different than the new car industry," says Pandey.

While Pandey and his team work on addressing the challenges, he also foresees an opportunity in the emerging ownership trend of subscribing to vehicles. MFCW is in talks with at least one major auto industry player. "We see it as a very good trend. Unquestionablly, that subscription model is an opportunity," says Pandey. Is that going to be a new business option for MFCW too?