Here are the factors driving the rapid growth of India’s used-car market

Used cars are outselling new cars in recent years, thanks to the quality, availability, and affordability of pre-owned vehicles, along with transparent operations.

Here are the factors driving the rapid growth of India’s used-car market

Tuesday November 23, 2021,

5 min Read

During the last few years, customers have developed a greater affinity for used or pre-owned cars.

The major drivers of this change have been affordability, availability, convenience and the high quality of vehicles in the used-car market. Significantly, between 2016 and 2021, the used-car sector’s CAGR stood at 3.4 percent while new cars de-grew at -8.33 percent.

There are multiple reasons for the subpar showing by new cars. These include policy reforms such as the transition to BS6 guidelines as well as global supply chain issues due to the trade war between the US and China, which triggered a shortage of spares and accessories.

A combination of these factors led to a steady rise in the price of new cars.

Multiple sales drivers

Conversely, India’s used-car market gave a plethora of options for its price-sensitive, value-conscious customers. Unorganised and fragmented earlier, the segment has now become more transparent, professional, and organised after new-age players entered the market.

As a result, consumer demand has witnessed a gradual shift from new models to pre-owned vehicles that provide more value-for-money choices.

Pre-owned cars have other drivers too such as the low penetration of vehicle ownership and a greater supply of used vehicles. Additionally, people are owning vehicles for shorter durations and opting for new ones every few years unlike earlier.

Clearly, the Indian market possesses tremendous potential for the four-wheeler passenger segment, particularly pre-owned cars.

For luxury or imported cars too, purchasing used vehicles is more cost-effective because quality cars can be bought for relatively lower prices. All these factors have propelled greater sales of pre-owned cars compared to new vehicles.

But the COVID-19 outbreak in 2020 threatened to throw a spanner in the wheel of India’s used-car market. Belying the expectations of market analysts, however, the used-car segment registered 5 percent growth in FY20 as compared to 2019 via the sales of 4.2 million units.

In comparison, new cars only managed unit sales of 2.8 million, contracting 17.8 percent over the previous fiscal. Notwithstanding the impact of COVID-19, used-car companies kept operations going while recording greater growth.

Partly, this was because consumers focused on social distancing norms, as well as health and hygiene concerns. Accordingly, the need for safe personal mobility became predominant and owning a car seemed the safest recourse.

Once again, customers preferred buying used cars rather than the more expensive new vehicles. Given its growth despite tough market conditions, 2020 can be considered an inflection point for India’s pre-owned car industry.

Choice, convenience, and transparency

With new-age startups backing their online presence with offline outlets across India, customers in metros, as well as tier 2, tier 3 and tier 4 cities, find it convenient to browse and buy used cars after due inspection.

As new-age car retailing start-ups offered customers the choice of viewing and choosing used cars online from the safety of their homes, these digital players witnessed rising sales traction. Customers now place requests to have vehicles sent to their homes for test drives.

The online platforms also allow prospective buyers to enjoy 360-degree views of all available pre-owned vehicles. Consequently, the standardised, safe, convenient, and enjoyable car-buying experiences have been encouraging more people to buy used cars.

The reliability of these benefits apart, consumers have additional incentives for buying used cars from organised online retailers. For instance, full-stack online retailers ensure each vehicle listed on their portals pass a 200-point checklist before uploading details.

This reassures buyers that the listed cars are in good condition. Potential buyers are also provided photographs and a detailed report regarding the vehicle’s service history. Organised online players also offer warranties and guarantees to address post-sales problems.

While the prices may be somewhat higher than those of unorganised used-car dealers, the fixed-price assurance and warranties of a new-age car retailer make any purchase worthwhile.

If buyers remain unsatisfied, a new-age retailer allows them to return the vehicle for a full refund, no questions asked, through its five-day money-back guarantee, subject to appropriate terms and conditions.

Meanwhile, even as they stood steadfast against the ongoing economic headwinds, COVID-19 nudged the pre-owned car market towards faster consolidation as companies moved to streamline operations and remain competitive under the challenging circumstances.

It may be noted that the country’s used-car market is categorised as per vehicles (hatchbacks, sedans, and SUVs), vendors (organised and unorganised) and fuel (petrol and diesel).

In 2020, the pre-owned car market was pegged at $27 billion. By 2026, this is slated to reach $50 billion, recording a CAGR of 15 percent between 2021 and 2026.

Presently, Delhi is recording the fastest growth for used cars, thanks to its large population, a higher inclination for car ownership, and the easy availability of pre-owned cars at low prices.

Driven by the availability of quality pre-owned vehicles and their price-sensitive ethos, today customers are more receptive than ever to purchasing used cars.

All of these drivers are poised to make sure that India’s pre-owned cars market drives from strength to strength in the coming years.

Edited by Teja Lele

(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)