Evolution of India’s used car industry

Autocar Pro News DeskBy Autocar Pro News Desk calendar 19 Dec 2012 Views icon32703 Views Share - Share to Facebook Share to Twitter Share to LinkedIn Share to Whatsapp
Evolution of India’s used car industry
India’s automobile industry is one of the fastest growing in the world and it is already the sixth largest globally. According to a SIAM report, annual car sales could reach 5 million vehicles by 2015 and more than 9 million vehicles by 2020.

Fast-growing pre-owned car market

Till about a decade ago, in the absence of organised players, more than 60 percent of all used car sales were C2C (customer to customer) among friends and relatives, with a ‘Circle of Trust’. The remaining sales were managed by local unorganised dealers. In 2001, Maruti became the first major organised player to enter the market with the launch of its used car brand – Maruti True Value.

Today, the Indian consumer has woken up to the positive value equation of pre-owned cars, and rightfully so. Pre-owned cars give higher flexibility and reach to prospective car owners, whether first-time buyers or repeat, due to the price advantage they offer. The economical prices of pre-owned cars help all types of buyers.

• First-time car buyers: Lower price point and wide variety ensure that a used car buyer gets a technologically advanced and wide range of cars at fair prices.

• Second car at economical price: Several Indian families have a need for more than one car and used cars offer them a more economically viable option.

• Upgrade to a bigger car at a lower budget: This is especially true in case of people from Tier 2 cities and towns. A used car allows them the opportunity to upgrade from a two-wheeler to a four-wheeler without stretching their budget.

Other factors responsible for the increasing popularity of used cars is the multitude of quality choices available coupled with an increase in income. All this has created a situation where people want to upgrade their vehicles more frequently. The paradigm shift from buying new cars to used cars can be attributed to the increasing organisation of the pre-owned car players. Apart from these obvious reasons, there are other benefits that make buying a pre-owned car a popular practice, such as lower rate of depreciation, easy finance options, and hassle-free documentation along with clean history.

Current state of used car market in India

According to estimates in the US, for every new car sold, around three used cars are sold. In Europe, this ratio is 1:2, while currently in India it is 1:1.1 and expected to become 1:1.3 by 2015. In Europe and other mature markets, the number of intended new car buyers is increasing, while the number of intended used car buyers is declining. In India, it’s a reverse trend that can be attributed to the rising cost of fuel and increasing disposable income. Though the general economic slowdown has hit new car sales numbers, the used cars market has seen an uptrend, clearly indicating that used cars will continue to move forward.

There are several reasons for the evolution and subsequent shift and growth of the used car market in India. Prime among them are:

• Improved quality: Used cars available nowadays have an improved and, hence, longer life due to technological advancements.

• Better maintenance: Due to improved quality and performance of mechanical parts, today’s cars are easier and better to maintain. Even a used car with 40,000-50,000km on the odometer will be much easier to maintain than a car with similar mileage 8-9 years ago.

• Less usage: Several urban families have more than one car. And the second or third car is relatively less driven and well kept. These are great used cars to be bought and offer excellent value for money to car buyers.

Internet access: With easy availability to high speed internet, more and more people are able to buy or sell cars on the web. Search costs have also come down, thereby reducing the dependency on word-of-mouth advertising.

Reducing dependency on used car dealers: People did not prefer to sell/buy used cars through self-appointed used car dealers because they could not be sure of the quality as well as the history of the cars sold. Organised players like Carnation buy only 2 of the 10 cars evaluated. This ensures high quality of the used cars sold.

Expansion of organised used car players: With the organised players stepping in, the used cars market has benefited from fair deals, warranties, better retail network, credibility, transparency, easy availability of finances. Carnation provides an assurance that all cars sold through its showrooms are bought by the right people. Hence, both the seller and buyer are assured of their investment. These have all made buying a used car easy. Organised used car showrooms also allow prospective customers to pick and choose cars from various brands and segments.

Even though today less than 20 percent of the used car market is organised, the lack of organised players has not proven to be an obstacle. That said, there is a huge scope for growth as most of the market remains untapped.

CRISIL’s graphs alongside reveal the growth in used car sales volumes and clearly indicate that the growth prospect for used cars is more as compared with that of new cars by 2017. Also, since the ratio of new versus used cars in India is still 1:1.1, the old car market will grow much faster than the new and within that segment the organised sector will grow the fastest to bring the ratio closer to the 1:3. That’s the norm in developed markets.

As per the CRISIL report, till 2006-2007, the used car market was dominated by unorganised players, and C2C with more than 96 percent of the market share. The number of organised players was just 4 percent in 2006-2007, increasing to 16 percent in 2011-2012. In the near future, the role of these organised players will increase substantially.

The Carnation advantage

Carnation has, in recent years, become a leading player in the organised certified pre-owned car market. As a multi-brand sale and service company, it offers customers a wide choice of cars across most brands available under the same roof. The lack of knowledge about the history and quality of a pre-owned car, which has always been a stumbling block for a used car buyer, has also been eliminated. Organised players like Carnation offer several advantages like a 160-point quality check process for every used car sold, help with finance, motor insurance, proper paperwork, and post-sales service of the car.

The organised sector has helped make used car transactions more transparent and ensure fair prices for both buyers and sellers. While Maruti True Value was the first organised player in the used car market in India, Carnation, currently India’s only multi-brand automobile sales and service chain, has been in the pre-owned car business since 2009. In the past two years, recognising the grwoth potential, many OEMs have opened used car showrooms for their own products.

The future of the used car market

The used car market in India is expected to grow by a CAGR of 20 percent in the next five years, with the organised sector playing a big role in this growth story. At present, there are about 750 organised used car outlets in India. In order to keep up with the projected growth, there is a demand for 3,500-4,000 outlets. Yet another important fact to consider is the likely implementation of GST. There will be uniform tax laws across all states making selling and registration of used cars a simpler and economical process.
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