While jury's out on millennials, used cars partly to blame for auto slump

India’s Finance Minister Nirmala Sitharaman this week said millennials opting for taxi-hailing services like Uber are a factor for the drop in vehicle sales. While the jury is still out on this, automakers face another speed bump: used cars. 

The market for pre-owned cars grew from 0.8 times of new cars in 2012 to 1.2 times in the year ended March 2019, analysts led by Chirag Shah at Edelweiss Securities Ltd wrote in a note. The spurt pushed up the annual growth rate of the segment to 11% versus 4% for new cars in the period, the analysts said.

New car sales suffered their biggest monthly decline on record in August, as deliveries fell 41% from a year earlier to 115,957 units. 

“The nature of the current slowdown coupled with slowing income growth, household savings and the evolving buyer profiles are likely to rev up used car sales at the cost of new car sales,” the note said.

Last seven years have seen a steady rise in the number of organised players in the used car segment, helping boost consumer trust. Pre-owned vehicles are now perceived to offer better “value-for-money” than newer models, according to the analysts.

The attractiveness for used cars improved further after the government slashed tax on pre-owned vehicles to 12%-18% from 28% depending upon the engine size. The price gap also widened after regulatory changes made new cars more expensive, the note said. 

Below are some excerpts from the report:

• Share of six to eight-year-old cars increased to 28% in FY19 from nil in FY17

• About 50% of used car buyers are aged 25-34 years

• Share of finance for used cars has risen to 17% from 10% in past three years

• Share of replacement buyers, who sell used cars to buy another pre-owned ones, has more than doubled to 11% in FY19 from FY16