Representative image (Source: ShutterStock)
The emerging models in a burgeoning pre-owned car industry increasingly pose a risk to individuals selling used cars, prompting consumers to demand a law on temporary ownership of cars by intermediaries.
This is because in many such arrangements reached online and offline, dealers and brokers who buy used vehicles do not transfer its ownership until a final buyer is found. So unsold pre-owned cars remain with intermediaries for long periods while ownership and related legal liabilities of the used car remains with the seller, according to research done by Consumer Voice, a consumer interest group, and Chase India, a public policy firm.
This gives rise to security concerns, and consumers are urging the Ministry of Road Transport and Highways to define intermediaries and give them temporary ownership of used cars, as is the practice in countries like the UK, Singapore, Australia and New Zealand.
Also Read: Covid-19 fails to deflate used car market
The Motor Vehicles Act, the law that regulates road transport vehicles in the country, is currently silent on the emerging market practices in the pre-owned car market and doesn’t define motor vehicle intermediaries.
The used car market in the country was estimated at $24.24 billion in 2019, expanding at a compound annual growth rate (CAGR) of over 15 percent, according to industry estimates.
Industry stakeholders acknowledge the gap. “Since there is no mechanism for intermediaries in the vehicle sale-purchase transaction to record transient ownership just for the purposes of trade, typically the ownership of a vehicle moves directly from the seller to the final buyer,” said Amit Kumar, CEO, OLX Autos India.
Vulnerable car sellers
While organised players such as OLX Autos, True Value of Maruti Suzuki India and Cars24 claimed that they have devised their own forms of contracts in the absence of regulations to keep the seller protected till the car ownership is transferred to the buyer, over half the used car market is unorganised and fragmented which leaves people selling used cars vulnerable, according to industry stakeholders.
The car can change hands multiple times before it is eventually registered in the name of the ultimate owner, because of several reasons. Each ownership transfer drives down the cost of the pre-owned vehicle, creating a general disincentive for multiple transfers in the pre-owned car market. There are no regulations that mandate the dealer to register the car unless he finds a real buyer.
There is no incentive for the buyer to transfer ownership to his name. “If motor vehicle intermediaries come under the ambit of law, consumers will be the biggest beneficiaries. Car-selling consumers will no longer be held accountable in case of misuse of their vehicles by intermediaries,” said Ashim Sanyal, chief operating officer, Consumer Voice.
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Organised industry players in the pre-owned car market seem ready for the prospect. Kunal Mundra, chief executive officer of Cars India, Cars24, said he was keen to “have a consortium of used car players and engage with the government to further streamline the process of RC (registration certificate) transfer and as a result, help the customer by making this journey hassle-free for him.”
Many developed countries have already made provisions to acknowledge motor vehicle intermediaries and grant them temporary ownership in some form. For instance, in Singapore, the intermediaries are given temporary ownership until three months, which can be extended up to a year on payment of an additional fee.
If the intermediary is unable to find a buyer till such time, he becomes the permanent owner of the vehicle. In the UK and Australia, the law mandates that the car sellers inform a government agency about the transfer of ownership to intermediaries. New Zealand identifies a sale to motor traders and has strong consumer protection laws in the used-vehicle space.
Pre-owned car sales zoom post-Covid-19
The pandemic saw a shift in preference for personal transport compared to public transport because of social distancing concerns, according to Kumar of OLX Autos and Mundra of Cars24. Many of those buying cars in the pre-owned vehicle market are first-time buyers, pointed out Mundra. Post the lockdown, almost 60 percent of buyers on the Cars24 platform are first-time buyers, as opposed to 45 percent in pre-Covid times.
Also Read: COVID-19 to further fuel used car sales, volumes expected to hit 8 million by FY25
The share of the pre-owned car market in the automobile industry surpassed the share of new cars by units just before Covid-19 struck. The pre-owned car market crossed the 4 million units mark in 2019 to become 1.2 times the size of the new car market, measured by units, according to a report by Indian Blue Book, a platform that values old cars. This growth, which is consolidating further in the post-pandemic period, is being driven by a surge in sales of used cars in metro cities, growing demand in non-metros and mushrooming of online sales platforms, such as CarDekho, OLX Autos, Spinny, Cars24 and Droom.
“The current enquiry levels are at an all-time high, with a huge contribution of online enquiries. We are constrained on the supply side. The offered prices on the used cars have substantially gone up and so is the selling price. The good quality used car has very little shelf life (with the intermediaries)” said Shashank Srivastava, Senior Executive Director, Marketing and Sales, Maruti Suzuki India.
The demand for used cars is growing month on month, added Srivastava. Much of the growth in demand is emerging from non-metro cities, towns and even rural areas. “What’s working in favour of the automobile industry is the strong rebound from the rural areas as Covid-19 has impacted them to a much lesser extent than their urban counterparts,” said Kumar.
When OLX Autos saw demand for used cars grow sharply by 25 percent between February and July 2020, much of it came from non-metros. Non-metro cities and metros listed the same number of luxury cars on the OLX platform last year.
“The reverse migration of people with urban exposure (to smaller centres and rural areas), good monsoon and crop yields, construction of rural road and bridges are increasing the demand (for used cars) upcountry,” said Srivastava.
Whenever there is an economic downturn, people gravitate towards pre-owned goods as they are cost-effective, said Kumar. From a business point of view, Covid-19 is a disruption, and disruptions work by clearing the way for underlying trends to become mainstream, added Mundra.