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Covid-19 fails to deflate used car market

Slowdown in new car sales, higher preference for used cars in place of public transport and ride hailing due to the pandemic, act as triggers to push up market; financing for old cars sees major jump during FY21

April 09, 2021 / 05:32 PM IST

The Indian passenger vehicle industry is estimated to have closed FY21 with total domestic sales of 2.65 million units.

While this was a fall of little over 4 percent compared to FY20, the pandemic has certainly pushed the car market to FY15 levels.

However, that’s not the case with the used car industry. COVID-19 has hit the used car segment too, but the impact is estimated to have been much less severe than the business of selling new cars.

As per Mahindra First Choice Wheels, one of the largest players in the used car segment from the organised sector, the pre-owned car market clocked sales of 3.9 million units during FY21, against 4.2 million units in FY20. At 3.9 million, the volume was still better than FY18 when the industry saw sales of 3.8 million units.

As per estimates, the used car industry is 1.5 times the size of the new car industry and is expected to grow to 7.1 million units by FY25.

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The fall in sales during FY21 can be attributed to decline in availability of stock rather than fall in demand.

According to Ashutosh Pandey, CEO and MD, Mahindra First Choice Wheels, buyers preferred opting for low ticket deals to meet their mobility needs as public transport was considered a risky proposition.

“The challenge in supply got exacerbated during FY21 due to the slowdown in new cars (leading to lower exchanges), higher preference for used cars in place of public transport and ride hailing (due to pandemic) and mis-match in demand-supply of top-selling cars in the used market (such as Mahindra Scorpio, Swift Dzire, Baleno, Hyundai i20 etc)”, he said.

The lockdown forced owners of new cars to hold on to their assets longer than usual leading to lesser instances of vehicle trade-in. Moreover, the used car industry saw higher supply of those models, which do not enjoy big demand leading to a demand-supply mismatch.

Swift, Wagon R and Dzire from Maruti Suzuki and i10 and Grand i10 from Hyundai remain the best choice among used car buyers. The average price of a used car in India is below Rs 3 lakh.

Post lifting of the lockdown, there has been a marked surge in demand for new cars, which was also helped largely by the entry of new models in the market. Renault Kiger, Nissan Magnite, Kia Sonet, Hyundai Creta, Tata Safari, Mahindra Thar, Toyota Urban Cruiser and Hyundai i20, were some of the cars that made a successful entry.

Demand for new cars restarted supplies of used cars into the market because of trade-ins. “There was a strong pent up demand post lockdown – both the enquiries and sales were higher than the monthly average of the previous year. In fact, in spite of losing three months in the year, the volume of used cars sold was very close to the FY20 number of 4.2 million units and 3.9 million in FY 21”, Pandey added.

According to Grant Thornton, companies in online trade space witnessed a 175 percent surge in inquiries for pre-owned cars. Used car financing has also seen a major fillip during FY21. For CarDekho, who has partnered with NBFC for providing used car loans, there has been a three-fold jump in financing in the same two years.

The annualized run rate of car loan disbursals at the end of February FY19 for CarDekho was Rs 632 crore, which grew to more than Rs 2,000 crore by end of March FY21. The company is now aiming at Rs 5,000 crore annualized loan disbursals by the end of FY22.
Swaraj Baggonkar
first published: Apr 9, 2021 05:32 pm

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