Pre-owned car industry needs regulation to protect consumer interest: study

At present, there are no regulatory provisions for intermediaries though they trade the pre-owned car multiple times before it is eventually registered in the ultimate owner's name

There is a need to define ‘motor vehicle intermediaries’ (MVI) and regulate the fast-growing pre-owned car industry to ensure that consumers remain protected in the space and the sector realises its growth potential, said public policy research and advisory firm Chase India, and Consumer VOICE, a prominent consumer-centric voluntary organization, in a report released Thursday.

Titled “Unlocking True Potential of Pre-Owned Car Industry post COVID-19” the report aims to offer a roadmap for a robust policy ecosystem for the used car industry.

The booming pre-owned car industry has various types of players - online and offline - who act as intermediaries in the transaction between the buyer and the seller. These transactions take place through online platforms, physical offices, garages and are mostly unorganised.

At present, there are no regulatory provisions for these intermediaries although they are at the centre of transactions for pre-owned cars and trade the car multiple times before it is eventually registered in the name of the ultimate owner.

The Motor Vehicles Act, which is the current law on the sale, purchase and registration of motor vehicles, has been unable to keep up with the changing dynamics in the market, particularly with respect to the role of intermediaries. The law is silent on these evolving market practices in the pre-owned car industry which puts the consumers at risk till the registration is transferred to the ultimate owner.

“Through the report, we aim to provide a comprehensive roadmap based on various international models to regulate the sector. This would enable better coordination between the centre and state governments as well as ensure the growth of the tech-enabled industry. Moreover, the formalization of the sector would attract more start-ups that could potentially be future unicorns,” said Kaushal Mahan, Group Business Director, Chase India.

Legally defining Motor Vehicle Intermediary by inserting a temporary registration provision will bring about a positive change amongst the stakeholders. It could usher in accountability of unsold vehicles on MVI in case the vehicle gets involved in any unlawful activity. This can also be seen as a step towards making the pre-owned car industry more organized, contributing towards foreign direct investment, job creation, tax generation and consumer empowerment, the report said.

"Consumers would be the biggest beneficiaries in case Motor Vehicle Intermediaries comes under the ambit of law. This would ensure consumer empowerment as they would not be held accountable in case of misuse of their vehicles by intermediaries. Therefore, the MVI classification would provide clarity and ensure better consumer support,” said Ashim Sanyal, Chief Operating Officer, Consumer VOICE.

According to a report published by Indian Blue Book, the preowned car market has grown in 2019, crossing the 4 million units mark and has now become 1.2 times the size of the new car market, measured by units. The value of the used car market is estimated to be $14 billion at present and is expected to rise to $25 billion by 2023.

Further, an OLX industry report found that pre-owned car sales are expected to grow at an average 10.6 per cent every year reaching a level of 6.6 million units by 2023. At the same time, sales of

new cars are expected to be much slower at just over 4 per cent.

The pandemic has changed perceptions around shared mobility options such as cabs, autos and so on, and could be a positive turning point in the pre-owned car industry, which has recently come to a halt due to cab aggregators and pollution abatement initiatives, the report said.

A Cars24 research study found that up to 41 per cent of the target population decided to forego public transport to maintain safety standards as health and safety will be top priority for masses.

The research study also indicated that post the lockdown, 53 per cent of the target population would likely buy a car within the next six months.

The report emphasises that the Ministry of Road Transport and Highways (MoRTH) should explore the possibility of creating a working group, with representation from all relevant stakeholder groups including government, think tanks, academia, industry players and industry associations to ensure a multi-sectoral and collaborative approach. This would keep consumers in the used-car space protected, as well as unleash the growth potential of the sector.