This week in Auto: Used car demand go through the roof

As the arrival of monsoon brings cheer to the Indian economy, automotive manufacturers hope to sustain last year’s momentum of eight percent growth in vehicle demand this year as well.

Monsoon may be generally considered to be a dull period for vehicle sales. Manufacturers avoid scheduling test drives during the rains and therefore also tug away their new launches for the time being. Nevertheless, there were still a couple of new vehicle introductions during the week.

Honda launched the 2018 model year Africa Twin at Rs 13.23 lakh (ex-showroom, Delhi), which is priced Rs 33,000 more than the previous version. Only 50 units of the off-road bike will be available for the Indian market. Africa Twin comes powered by a 998cc, liquid-cooled engine that makes peak power of 89bhp.

British luxury brand Bentley launched the V8 version of the Bentayga sports utility vehicle at Rs 3.78 crore (ex-showroom). Powered by a 4.0-litre, twin-turbocharged V8 generating peak power of 549hp this version is less powerful than the W12 version launched by it some months ago.

Also during the week BMW finally decided to open bookings of the G 310 range, a bike that the German giant has been sourcing from India for the export market since the last few months. The company has promised to launch the G 310 R and G 310 GS soon without giving price details.

But behind the glitz and glamour of shiny new cars and bikes a bigger story is marching ahead in the used car industry. Unknown to many the pre-owned car market is bigger than the new car market. At nearly 4 million used cars the market is 1.25 times bigger than the new car market that saw sales of 3.2 million units last financial year, as per SIAM data.

New cars costing Rs 12 lakh on road are sold for as low as Rs 5.5 lakh after four years of reasonable wear and tear, while a Rs 8.5 lakh premium hatchback can be bought for Rs 3.5 lakh. Several online and offline forums sell refurbished used cars that look as good as new.

In addition, the growth in demand for new cars has guaranteed a steady supply to the used car market. But most of those volumes are coming from the unorganized segment such as road-side garages, transactions done within family or friends circle etc.

Given the stratospheric rise in usage of internet in India selling cars through the online medium has become the most time and cost effective way to dispose of a used vehicle.

As per a report by online market place leader Olx transactions for cars on its platform increased by 25 percent, from 2.4 million units sold in 2016 to 3 million units in 2017. The auto category is the largest category on Olx generating 40 percent of the user visits on the platform.

The user interest in pre-owned cars and bikes is so high that it generates 2.4 billion page views a month. Eight cars and four bikes are listed on the platform every minute with 40 percent of the vehicles getting sold in the first week itself.

The boom in demand for used cars is led primarily by three factors; reduced ownership cycle, increased frequency on new launches and improved road conditions. As per estimates ownership duration has reduced to four years from a high of seven years recorded a few year ago. It is expected to further go down to three years by 2020.

Non metros such as Ahmedabad, Ludhiana, Kochi, Indore, make up half of the enquiries. “People in non-metro markets are more cognizant of their interests and rights, and want to make informed purchases and decisions that are independent of intermediaries and cost effective. This has helped OLX gain traction in Tier 2 & 3 cities. One will find all forms of vehicles listed from smaller towns, be it SUVs to commercial Tractors. We expect the listings to surpass 40 percent of the total pie in the next six months”, said the report.

Last year was a slow burner for the pre-owned vehicles market given the lingering impact of demonetisation, GST implementation and ban of BS-III vehicles. Dealers who constitute a big community of the business went through a bumpy ride in the initial months of GST as the tax rates were aligned to a standard 28 percent. However, the market revived in the first quarter of 2018 after the government announced bringing GST rates on pre-owned cars to 12 percent and 18 percent, depending on size of car.