Used cars on a roll, chip shortage hits new models
Used car sales are on the rise in India on greater need for personal mobility. The uptrend in prices is seen globally too.
While used car sales in India are on the rise, it is interesting to see that the global pre-owned car index hit record highs in April on semiconductor shortage and greater demand for personal mobility.
Ashutosh Pandey, MD & CEO, Mahindra First Choice Wheels (which is in the business of used cars), does not see the former as a major factor in the Indian context. “There is no implication —the semiconductor shortage impacts new cars and even this is likely to be a temporary phase,” he reiterates.
According to Shashank Srivastava, executive director, Marketing and Sales, Maruti Suzuki India, the semiconductor shortage has led to inventory levels falling sharply at new car dealerships. “At the same time, there is good demand for transportation and some people will shift to used cars,” he says.
Simply put, constraint in supply of new cars leads to demand for used cars and “supply constraint of used cars leads to the price going up”. This is precisely what is playing out in the Indian used car market which is seeing a sharp uptick in demand and prices.
Shortage of semiconductors has adversely affected companies for nearly a year now. According to LMC Automotive, new vehicle production fell 4.6 percent globally. However, this is proving to be a booster for pre-owned car prices globally.
Manheim Index for used vehicles hits record highs
The semiconductor shortage has impacted production of new cars across the world while boosting the used car business. The Manheim Index, which gives an indication of wholesale used vehicle auction pricing, has moved up 52 percent year-on-year. In India, however, it becomes difficult to calculate the transaction price of all the used cars sold in a common index like the Manheim.
“Most of these transactions will be C2C because in the Indian used car market, the organised segment is still about 18-20 percent,” explains Srivastava. Unorganised broker sales, or C2C, take up “40 percent or so”. In Pandey’s view, there is no direct implication (from the Manheim Index) since India’s used car market has different demand and supply dynamics.
“Here, supply of a quality used car is the primary challenge. However, since the demand for used cars is on an upswing, we expect some firming up of prices of popular models such as Swift Dzire, Mahindra Scorpio and Vitara Brezza,” Pandey adds.
As Srivastava elaborates, every country has its own dynamics of the used car market. “That said, if there was a Manheim Index in India, it would have gone up for India too because the average prices both buying and selling used cars went up last year,” he says.
Prices trending north in FY2022
For now, the pandemic has wreaked havoc across the supply chain where “inventories in dealerships are less than normal and production is less than normal because of the lockdown”. Srivastava expects demand for used cars to go up because people are moving away from public transport towards personal mobility.
“For many, a used car will now be the first choice because it is less expensive. I see demand for used cars going up, demand for personal mobility going up and if production does not come back strongly then I would expect used car prices to go up,” he sums up.
Pandey agrees that prices are likely to “firm up marginally” though the quantum will depend on the supply-demand mismatch when the lockdown ends. For now, initial trends suggest that pre-owned car demand is fairly strong. The India Blue Book survey anticipates used car sales to reach nearly seven million units annually this fiscal, nearly twice as much from the current tally of four million units.
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