Used cars demand surges amid COVID scare

India’s used-car market is booming as buyers have a wide range of options, easy financing, convenient digital sales channels and a growing preference for personal mobility in the COVID-19 era.

More buyers are queuing up for pre-owned vehicles than ever before as second-hand cars are no longer considered a taboo, and are the preferred option for a family’s second or third car.

Car dealers said that instead of going for budget models available for under Rs 5 lakh like Maruti Suzuki Alto and S-Presso, Renault Kwid or Hyundai Santro, buyers are opting for more powerful pre-owned cars with better features.

“Prices of new cars have increased significantly in the last one year. And therefore, buyers have understood that a used car is a better value for money instead. The pandemic has only pushed that understanding further,” Vinkesh Gulati, President, Federation of Automobile Dealer Association said.

A study backed by Mahindra First Choice Wheels said the purchase decision of 65 percent of consumers who bought a used car was influenced by COVID-19. Earlier, they were either not considering a used car or not aggressively looking for it.

Demand is such that several major markets such as Maharashtra, Karnataka and Delhi-NCR are witnessing a crunch in supply of used cars because of the tendency to hold on to the vehicle for longer than usual.

“Right now, our major issue is not how to sell a used car but how to buy a used car. Customers are not ready to give up their vehicles so easily,” Gulati added. This is despite the fact that new car sales surpassed pre-COVID levels within a few months after easing of the lockdown restrictions.

India’s used car industry stood at an estimated 3.8 million vehicles at the end of FY21, and is expected to more than double to 8.2 million units by FY25, according to the ‘Indian pre-owned car market’ study commissioned by Volkswagen India and Frost and Sullivan.

From around 1.4 times, the used car market is expected to be 2 times the new car market in the coming years. As per estimates shared by JM Financial India’s used car industry’s turnover is expected to rise from $17 billion in FY21 to $47 billion in the next five years.

New channel of sales

In July used car retailing start-up Spinny raised $108 million from investors including Tiger Global Management. This came barely three months after Spinny raised $65 million in a funding round led by General Catalyst.

The fresh funding will be routed towards geographic expansion, deeper market penetration, new technology and product capabilities. Cars24, Droom and CarDekho are some of the other players in this segment. Such tech-based channels have greatly streamlined the process of buying and selling used cars.

Sandeep Aggarwal, Founder and CEO, droom.in said, "We have been witnessing a lot of trends proving that the financial uncertainty and decrease in disposable income have shifted the consumers towards used vehicles. For the first time, we crossed Rs 1000 crore GMV in March’21 and most of it came from the used automobile. The traffic on our used vehicle category has gone up by 100% in the last 6 months."

India’s used car market remains highly unorganised comprising roadside retailers and inter-family sales channels or sales among friends. Online marketplaces such as OLX and Quikr also aid in virtual transactions. But consumers do research online before making any purchase.

“64 percent of people who have bought used cars in FY21 have used digital channels significantly in their purchase journey. 50 percent of these were specifically looking for an organised used car dealer. This pattern of using digital is as high as 73 percent in the people who are in the consideration phase,” the Mahindra group-backed India Blue Book said.