Surge in demand for 'young' used cars outpaces supply, drives prices north

SUVs set to reach 45% of used car market soon

A surge in demand for "young" pre-owned vehicles (3-5 years old) is outpacing supply and driving up prices by 8-10 per cent annually, said auto industry insiders. This trend, coupled with a growing preference for SUVs in both new and used car segments, is expected to boost the organised used car market, which is expected to reach a 45 per cent share within three years.

According to the Indian Blue Book report by car&bike and Das WeltAuto, the current value of pre-owned car sales, standing at $32.44 billion, is expected to more than double to $73 billion by FY28. The growing demand for SUVs, which now comprise around 55 per cent of the new passenger vehicle market in India, is mirrored in the used car segment. This shift is contributing to the overall expansion of the organised used car market.

Speaking on the market, Ashish Gupta, brand director of Volkswagen Passenger Cars India, revealed that last year the company sold close to 30,000 used cars through its Das WeltAuto platform, marking a 12 per cent growth. Gupta also pointed out that 30-35 per cent of Volkswagen's sales come from exchange or trading, emphasising the importance of the used car business as a standalone revenue driver.

Currently, 70-75 per cent of new car sales are financed, which has grown over the past decade, while only 25 per cent of used car sales are financed.

Mohammed Turra, chief executive officer-designate, Mahindra First Choice, stated: "Financing is a key enabler for both new and used car sales, indicating the maturity of the used car industry. Currently, 70-75 per cent of new car sales are financed, a significant increase over the past decade that has facilitated easier car upgrades. In contrast, only about 25 per cent of used car sales are financed, highlighting a substantial potential for growth. This percentage could rise to 35-40 per cent in the next few years, driven by the increased reliability of cars and the organising market. Additionally, leasing, which is less than 1 per cent in the new car market in India, could eventually supply high-quality used cars, further boosting the organised sector."

Upgrading to a new pre-owned car is the most common reason for selling, with budget-conscious buyers seeking quality vehicles. Additionally, there is a growing emphasis on safety features, mirroring trends in the new car market.

The report also highlighted consumer preferences, noting that a majority of buyers are budget-conscious and increasingly informed about car technicalities. The report found that 71 per cent of buyers consider make, model, and variant as significant factors, while 63 per cent prioritise quality cars. The trend towards prioritising safety features has positively impacted the residual value of Volkswagen cars, particularly the Taigun, which now boasts a residual value of 81 per cent after 2-3 years of usage.