VW, Frost & Sullivan study sees pre-owned car demand to touch 8 million by FY2025

by Nilesh Wadhwa 16 Jun 2021

The growth trajectory for the used-car market remains robust. A study commissioned by Volkswagen India to Frost & Sullivan indicated that the used car market is expected to touch 8.2 million units by FY2025 from 3.8 million units in FY2021. While the used car demand is right now 1.5 times that of new cars, it is likely to be 2.1x by FY2025. 

The increasing role of organised play is another key finding of the, ‘Indian Pre-owned Car Market Study’. It indicates organised platforms will contribute 45 percent to the total pre-owned car market by FY2025 from the 25 percent share at the moment. 

According to the study, while the used-car market is dominated by unorganised sector contributing almost 75 percent of the overall sales, the demand for certified products, aftersales support and finance options will propel the growth for the organised players propelled by demand from Tier 2 and Tier 3 cities. .

However, tougher emission norms and growth of shared mobility services, including public transportation, is expected to affect the share of used cars in Metro cities. The data pointed out that in FY2021 the sales share between metro and non-metro was 45 and 55 percent and it is expected to become 30 percent and 70 percent by FY2025.

This survey was conducted among customer age group of 25 – 59 years comprising both male and female respondents across Delhi, Mumbai, Bangalore, Hyderabad, Chennai, Kolkata, Ahmedabad, Chandigarh, Cochin, Coimbatore, Guwahati and Bhopal.

Ashish Gupta, brand director, Volkswagen Passenger Cars India pointed out that, “Used car sales will see further growth as compared to new car sales. With the aim to tap this growing opportunity, we are relentlessly working towards strengthening our offerings for customers through our national pre-owned car network, Das WeltAuto (DWA). In addition, we believe that Tier 2 markets will play a critical role in our used car business volumes and the customer insights from the study will further aid us in addressing their requirements through our customised solutions.”

Kaushiv Madhavan, VP – Mobility (Automotive & Transportation) Practice, Frost & Sullivan added that, "Growth in the Indian pre-owned vehicles market is driven by rural and tier 2 and 3 cities in India, especially with the entry of OEM-supported channels. This has not only increased transparency and trust in the pre-owned vehicle business but has also exposed potential buyers to newer generation vehicles with better safety, reliability, and quality. In combination with attractive financing options, the non-metro market is expected to drive additional revenue generation opportunities for the OE authorised channel partners over the next 4-5 years."

Cars below Rs 10 lakh make for 90 percent of sales
The study highlighted few more interesting insights about customer preferences. In terms of cost, the bulk of 90 percent of the sales were in the sub-Rs 10 lakh bracket. And of this more than 70 percent of the sales were in the price range of Rs 500,000.

In terms of model specifications, the study found that almost 56 percent of the respondents purchased mid-variant cars, followed by 33 percent choosing top variants. The share of diesel continues to be high with almost 53 percent of sales, followed by 41 percent of petrol-engine cars. A whopping 64 percent of the used-car buyers were found to be first time car buyers. 
In terms of factors influencing the purchase decision, price was the key criteria for 61 percent, followed by maintenance cost for 25 percent and 20 percent chose on the basis of the brand while fuel influenced decisions for another 20 percent of the respondent. 

Cash continues to be King
In terms of preference for a specific mode of payment, cash continues to remain king. With around 50 percent of transactions taking place in cash, followed by 21 percent online transactions. About 17 percent of respondents would go for finance options while 10 percent transactions are a combination of cash and online. Vehicle for exchange comprised 2 percent of the transactions in the used car market. 

The study further revealed that cars aged 3 years, with mileage of 37,500km on average are amongst the most preferred vehicles. Availability of newer generation vehicles with top features has made purchase of pre-owned vehicles more attractive. The reliability and trust factor brought in by the organised players, availability of finance options, and the changing mobility trends has also helped improve the sentiment in the pre-owned car market.

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