Organised sector to account for 35% share of India’s pre-owned car market by 2027

Even as the Indian passenger vehicle market clocked record sales of 3.8 million units in CY2022, there is still plenty of headroom for growth. For a country with a population of over 1.35 billion, India averages only around 22 cars per thousand people. While this spells into a huge opportunity for new vehicle sales, it also translates into a similar one for the pre-owned or used car industry to capitalise on.

The pre-owned car market in India has been witnessing strong growth over the past few years. This sector, which has been outpacing the new car market, is expected to clock 12-14% CAGR over the next few years, taking the market size to more than 7 million vehicles by FY2026, up from 3.8 million units in FY2021. At present, it is 4.3 million-units-strong, of which organized players like Maruti Suzuki True Value, Mahindra First Choice, Hyundai Promise and Honda Auto Terrace, among others, hold only a 20 percent share.

There are a number of reasons why the pre-owned car industry will continue to remain a sunrise sector. While the Covid-19 pandemic was instrumental in driving demand for the sector as a result of the consumer preference for personal mobility, other factors like the growing number of established OEMs in the business, increased inventory levels, wide choice of new-generation vehicles across segments along with warranty, and customer-friendly digitalisation which has delivered enhanced transparency and trust, have powered recent growth. What further enhances the pre-owned car buyer’s peace-of-mind quotient is the rigorous vehicle quality checks, evaluation, refurbishment and certification process undertaken by the organised sector.

Old is the new ‘new’

Given the rapid pace of growth in the pre-owned car sector and the marked shift in consumer mindset towards the more transparent nature of operations – from initial enquiry through to purchase – the organised sector, including digital-platform sales, can only expect to achieve speedier growth in the coming years.

It is expected that around 35% of India’s pre-owned car market, which at present is largely an unorganised sector, will transform into an organised structure over the next five years. This was the consensus of top industry experts who participated in a recently held OLX-Autocar panel discussion on ‘The Evolving Used Car Market in India’.  

The panelists comprised Shashank Srivastava, Senior Executive Director, Sales & Marketing, Maruti Suzuki India; Rajesh Menon, Director General, SIAM; Amit Kumar, CEO, OLX Group India, and Hemal Thakkar, Director-Transport, Logistics and Mobility, CRISIL.

Car market leader Maruti Suzuki India drove into the pre-owned car market in 2001 with its ‘True Value’ business vertical. Maruti True Value, whose all-India network currently stands at 559 outlets spread across 277 cities and is the largest in the country, has since sold over 4 million cars and counting. According to Shashank Srivastava, one of the primary reasons for this sector’s growth is the first-time buyer’s need for transparency and most of them are millennials.  

Maruti True Value, whose all-India network currently stands at 559 outlets spread across 277 cities, has sold over 4 million cars since 2001.

“These days, a large chunk of first-time buyers are youths who seek hassle-free documentation yet want to buy vehicles from a trusted source. And organized players like us are ticking all their checkpoints. I see immense potential in the pre-owned car market going forward. Sales of about 860,000 second-hand cars are happening through organized channels. This will reach about 2.7 million units by FY2027, constituting 35 percent of this market.”

Srivastava also highlighted that the company's pre-owned cars follow a stringent process of quality checks before hitting the market. “"We give a one-year warranty, three free services, and we use genuine spare parts. Additionally, we also provide hassle-free documentation and immediate transfer of ownership. All these factors have led to consumers realising that it's great to buy and sell cars from a trusted source or network,” he added

Market-moving dynamics

With the changed business landscape following the pandemic, the panellists believe that India’s second-hand car market will double from the current 4.3 million units to hit 7.65 to 8 million units by 2027.

“At present, potential buyers are compelled by high prices of new cars, which is the result of various factors like material cost hikes and regulatory changes, among others. Most of the primary buyers today are fulfilling their desire of owning a vehicle with used cars,” said SIAM’s Rajesh Menon.

Echoing a similar sentiment, OLX Auto’s Amit Kumar pointed out that one of two used car customers today are first-time buyers. "There is a massive upgrade phenomenon happening from two-wheelers to cars, and financing also is playing an important role there. All we need is a prominent presence of a transparent mechanism, which will ultimately double used car sales in coming years.”

Underscoring the massive business opportunity that is staring at the industry, Srivastava said first-time buyers in India grab around 45-47 percent of overall car sales, compared to a mere 5 to 7 percent in advanced markets like Japan or the US. He pointed out the fact that one big cluster of new car buyers constitutes replacement buyers, who play a crucial role in maintaining the demand-supply gap in this business. Replacement buying is essentially when consumers sell their old car and buy a new car.

“We started True Value two decades ago with an objective to encourage replacement car buying, which is a large percentage in developed markets, and eventually take up a big size in India. Once the customer sees value in replacing their existing cars, they will immediately look for upgrades which will push the new car sales,” explained Srivastava.

Typically, replacement car buying used to be 26-30 percent of overall sales before the pandemic. However, it fell drastically to 15-16 percent during Covid-19 as people held onto their new cars. “Last year, this segment saw a revival and reached almost 23 percent,” added Srivastava.

The pre-owned car segment witnessed a trying demand-supply scenario during the two years of the pandemic. As a result of the increased need for personal mobility across the country, the demand for used cars shot up and supply fell sharply in the absence of a replacement cycle. “Because of this gap, we saw used car prices at the time rising 10-15 percent on the top-selling models. The dealer inventory came down from around 45 days to 25-26 days,” said Amit Kumar. As the demand-supply gap now stabilises at pre-Covid levels,  Kumar expects some depreciation in used car prices in the coming months.

The road ahead

In a bid to create a mature market, the panellists unequivocally were of the opinion that primary step is to make optimum use of data and digital platforms. "The new era demands transparency and openness in business, which can only come from digital platforms and thereby create an organized atmosphere. Therefore, data is something which is going to be extremely critical to measure how things are today and how it will shape up going forward,” said CRISIL’s Hemal Thakkar.

In the same vein of thought, SIAM’s Rajesh Menon emphasised that the used-car industry at present sorely lacks structured data which can be mined and studied further to gauge market trends. “At present, this market is running on estimates and, barring a few digital platforms, we don’t have any solid information on the value chain of used car markets. It is imperative that dealers in this space must digitise their process so that we have an almost accurate number of used car transactions as we have for new cars.”

That’s just what the organised pre-owned car industry is aiming for and is already drawing a growing number of consumers. In an era of rapid urbanisation, the user-friendliness of smartphones, and fast-changing consumer preferences in a country with a fast-growing population of millennials, speedy access to data and accurate information is imperative.

While the YOLO (you only live once) mantra continues to power new car, particularly luxury vehicle, sales, making an informed choice to buy a pre-owned car, which is relatively young and also feature-rich, is increasingly being considered as a smart and pragmatic decision, more so when a brand-new car’s value depreciates by as much as 20-25 percent when it is driven out of the showroom.

Given the wide-ranging changes being brought about by organised players and digital platforms in a value-conscious and price-sensitive market like India, the ‘less-can-also-be-more’ dynamic of the pre-owned car market will be a key growth driver in the future.