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Last Updated : May 03, 2019 05:39 PM IST | Source: Moneycontrol.com

Demonetisation has crippled cash market for used cars

Cash-based payment system formed 80% of used car transactions before November 8, 2016 which has shrunk to 34%

Swaraj Baggonkar @swarajsb
 
 
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The number of cars purchased and sold on a cash basis has more than halved since the demonetisation nearly two and a half years ago. From nearly 80 percent, all-cash transactions in the used car market have shrunk to 34 percent, in effect strengthening the organised used car market.

India ended FY19 with estimated sales of four million used cars, nearly 1.2 times the new car market of 3.3 million.

Pure cash-based transactions accounted for much higher than other payment methods pre-demonetisation with average selling price at Rs 3.1 lakh, according to data by the Indian Blue Book. In fact, cash payments formed nearly 80 percent of transactions in the used car market before November 8, 2016. But despite adequate cash availability in the system ever since, a major part of all transactions have stayed with non-cash models.

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India’s used car market was worth Rs 20,000 crore as of last financial year. This is expected to grow to Rs 50,000 crore by FY22 with sales of about 6.7 to 7.2 million cars a year.

Ashutosh Pandey, Managing Director and CEO, Mahindra First Choice Wheels, said, “Demonetisation severely impacted the market. There was no cash available in the aftermath of demonetisation and this really impacted the used car market. It also impacted the dealer sentiment which is why we had to go back to the dealers and give them some short term reprieve on some payments.”

“Though the cash in the market has come back people, have already shifted to cheque or cash+cheque. Pre-demonetisation period cash transactions used to be 80 percent now that number is down to 34 percent. To that extent demonetisation helped formulate the organized market,”, added Pandey.

Shubh Bansal, Co-Founder, Truebil, said, “Cash-based transactions in the industry is 20-25 percent which is lesser compared to the time before demonetization when it was 70 percent. So demonetisation boosted the business of organised players because we deal only in non-cash.”

Truebil is an online market place engaged in used cars and recently partly shifted its model to the brick and mortar model from purely online.

The share of the organised market in the overall used car pie expanded to 20 percent in FY19 as against 11 percent recorded in FY11 and 3 percent recorded in FY09, as per a research conducted by PremonAsia, a consumer insight based consulting firm, on behalf of Mahindra and Mahindra.

Mahindra First Choice Wheels, the used car entity of the Mahindra Group is expecting the overall market to remain fragmented with around 30 percent transaction being customer to customer and 40 percent being through semi and unorganised channel. Organised channel’s share is expected to expand to 30 percent.

As per the finding of the report about 85 percent of used car buyers are those who wish to upgrade from a two-wheeler. Over 75 percent of pre-owned car purchases comprise hatchbacks and sedans, which is similar to the new car market. The cars bought are predominantly from first owners with 72 percent of them being less than five years old.

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First Published on May 3, 2019 05:39 pm
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