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Used luxury car segment on upswing

Vishnu Pandey  |  New Delhi/ Kanpur 

The pre-owned luxury car segment in Uttar Pradesh (UP) is witnessing an upswing, riding on easy financing options coupled with drastic drops in second-hand luxury car prices. The cheaper second hand car market has simultaneously registered a drop in the unorganised sector, mostly due to launch of low-cost new models, of which Tata’s Nano tops the chart.

The organised car dealers in the state have begun to create a dent in earnings and revenues of unorganised players. Lucknow-based Tata Motors dealer, Y N Shukla says that the market is picking up in both the segments as they have tie-ups with leading banks, with cooperative staff ready at beck and call.

“We don’t see any hiccups for us here in the local market. Of course, the smaller players have no other option than to upgrade or exit the business, sooner or later,” he adds.

These neighbourhood car sellers are caught amidst an irony of sorts. Even as the sales volumes of high end luxury car segment are rising for last few months, they have witnessed a paradoxical decline. The industry players attribute this drop to severe fall in cheaper cars segment due to easy financing options.

UP Automobile Association (UPAA) President Ved Jain told Business Standard that the entry of organised players into the used car market coupled with high value-added tax (VAT) rates in the state have significantly eroded their sales.

“Most of the unorganised dealers are scouting for alternate business or opting for dealerships of bigger players like Tata and Mahindra. We have seen a decline of almost 50 per cent in small car pre-owned market, while the buyers have turned more towards second hand luxury cars,” he explains.

Pre-owned super luxury cars come at a much cheaper price compared to the new ones. “Used super luxury cars make great sense for those passionately into cars but don’t make sound business sense for an individual/corporate making the second-hand prices fall drastically. People in this segment change cars fast and most buyers don’t care about residual values. They just want the latest model,” said Jain.

Most of these unorganised players have severe budget constraints which renders them unable to cater to luxury car demands in pre owned market. However, those who have been able to finance it say demand has almost doubled and growing for luxury cars like Toyota Camry and Mitshubishi Lancer.

According to industry sources, prices of such cars crash by almost 25-30 per cent just after one year of use. For instance, Porsche’s Cayenne Turbo, which costs around Rs 94 lakh in brand new condition, is available for Rs 70-75 lakh in the used-car market after one year of its use, while Bentley’s Continental Flying Spur, which costs Rs 1.85 crore, is available for Rs 1.48-1.55 crore. Likewise, the Rs 98-lakh Mercedes SL500 can be bought for Rs 80-82 lakh

“Hardly 25 per cent of the unorganised players have been able to upgrade their staff, product range and infrastructure in general to be able to compete with their organised counterparts. Rest are doomed to remain in doldrums sooner or later,” said Jain.

On the other hand, the organised players are all in upbeat mood, riding on strong marketing chains, brand appeal and competitive pricing.

First Published: Sat, July 10 2010. 00:43 IST