Used car market on growth track, but auto crisis casts a shadow

Even as auto manufacturers sweat their pain out in the most prolonged slowdown in decades, players in the organised market for pre-owned cars have not taken hankies out of their pockets yet. But they might have to, latest data and their own projections suggest.
 

Both physical stores for pre-owned cars run by manufacturers as well as online players facilitating sales of used cars are seeing growth in demand, in contrast to contraction in sales and registrations of new cars. The pre-owned car market is 20 per cent bigger than the new car market, making it a significant marker of car demand in the economy, multiple reports show.

However, there’s a dichotomy in the magnitude of growth seen by traditional players and the relatively new online players. While used car sales growth at Maruti True Value and Mahindra First Choice is weakening, online players are seeing near stable growth in sales/listings.

Analysts and industry representatives fear that the slowdown in new car sales could  have a spillover effect on the used car market in the coming months. Till now, affordability has kept the growth numbers in green, they said. Also, as online marketers are new on board, their growth stands on a low base. Easy buying and selling on smartphone-based apps add to their incremental popularity. 

Mahindra First Choice Wheels, for instance, saw growth in sales of used cars moderate in the past two quarters. From 15 per cent growth in FY19, pre-owned car sales grew at about 10 per cent in the June quarter of FY20, and is expected to fall in the range of 5-8 per cent in the remaining part of 2019, according to CEO Ashutosh Pandey. 

“As new car sales come down, the demand for replacement also declines, slowly affecting the used car market. But while the liquidity issue in non-banking financial companies and uncertainty in minds of customers could be the prime reasons for dropping new car sales, affordability is the underlying theme of growing used car sales,” Pandey pointed out.

Maruti True Value too has experienced a tepid 2019. Sales at its used cars store grew at 8 per cent in April–August 2019, slower than the 17 per cent growth clocked in April –August 2018 data obtained from India’s biggest automaker shows.

In July-August 2019, True Value sales grew only at 6 per cent. Data from Maruti corroborates the affordability factor—small cars and hatchbacks such as Alto, WagonR and Swift are the top grossing models at True Value.

Showing a brighter trend, online players in used car market are riding high. Olx, an online classifieds place for consumer-to-consumer transactions, saw a 15 per cent rise in listing of new cars in April-June 2019. The growth was similar in January-March 2019, when the new car sales had started bottoming out.

Sunny Kataria, vice president at Olx Auto, said affordability was a key factor here too, in addition to better cars being available in the pre-owned market. “Earlier, the pre-owned car market was dominated by granny cars. Now, relatively newer, safer cars are on sale, with valid registration and insurance coverage, which acts as a safe bet for most buyers,” said Kataria.