Used car market’s gain is automobile makers’ loss

Companies in the pre-owned car market are witnessing growth like never before, courtesy the growing aspirations of consumers, manufacturer-backed offers and exponential growth in the e-commerce space. Till a few years back, the ratio of new to used cars was 1:1.2. This has now grown to be 1:2.2, according to the reports of CRISIL. This implies that for every 10 new cars sold, 22 used cars are finding cars. It is interesting to note that with steady decline in the holding period of a vehicle from six years to three years, there has been a considerable increase in the supply of used cars. Market watchers have also asserted that the new passenger vehicle market is set to close at 2.8 million units this year.

Second Hand Car

Ajay Srinivasan, the director of CRISIL Research, has made a statement that the factors which are fuelling growth in the used car space include shorter holding periods, a rising mass of aspiring buyers, greater participation of original equipment manufacturers-backed players in the used car market, accessibility of finance options, and availability of certified and refurbished cars with warranty. What’s more, the rise in demand for used cars has stumped even organized players. According to Rajeev Dubey, group president and chief executive officer at Mahindra & Mahindra, the average holding period has decreased from five to six years earlier, to three years in today’s times. With the rise in per capita incomes, more and more people will explore the proposition of buying a used car, irrespective of whether it is their first car or not.

Market reports have also suggested that 7 out of 10 such pre owned cars sold are complete hatchbacks, while the rest is a mix of sedans and luxury cars. In fact, Maruti Suzuki is the most preferred choice of used car buyers, due to its trusted reliability, ease of maintenance, and high mileage. CRISIL has also stated that used car sales volumes have grown at a CAGR (compounded annual growth rate) of about 15% over the past five years till 2014-15. Although the ratio of sales of used cars to new cars in our country has witnessed a rise over the years, it is still comparatively slower than the 3:1 norm that is typical of mature markets like the US and Europe, which indicates potential for further growth.

Generally, the preferences and requirements of buyers that are observed in the new car market are mirrored in the used car buying trends as well. However, a used car buyer is not seen to be as brand-conscious as a new car buyer and is willing to experiment. Going by a Mumbai-based analyst, brands that are usually overlooked but are available at an alluring price with complete features attract instant attention from used car buyers. What is thus, good news to the used car market, will not bode too well for the automobile makers.

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