Soaring demand, especially from first-time buyers, is sending prices up by 8-10 percent annually.
Published On Jul 21, 2024 08:30:00 AM
Gone are the days when buying a pre-owned vehicle in India was synonymous with settling for less. The journey from ‘used’ to ‘pre-loved’ cars signifies a profound shift in consumer attitudes and market dynamics. While ‘used’ implies wear, depreciation and, potentially, lower quality, ‘pre-owned’ or ‘pre-loved’—as the companies prefer to call it—reimagines these vehicles in a positive light, suggesting care and enduring value. And the proof of it lies in the numbers.
In the fiscal ended March 2023 (FY23), the industry sold 5.17 million units, a 56 percent increase from the 3.3 million units sold seven years ago. By FY28, that number is expected to almost double to 10 million units.
And why not? First, there’s a burgeoning middle class with a growing desire for personal mobility. Technological advancements have been lightning-quick. In the backdrop of it, several online platforms for second-hand vehicles, such as Spinny, Cars24, Cardekho, and car&bike, have emerged. They not only offer better quality, more reliable pre-owned vehicles but also financing options. Manufacturers’ entry into this arena over the years has also bolstered the pre-owned cars market. Among them are Maruti Suzuki True Value and Mahindra First Choice Wheels, to name a few. Even the buyers are now more informed and discerning, seeking value for money without compromising quality.
By FY28, the compounded annual growth rate for the second-hand cars market is set to hit 16 percent compared to 6 percent for the new cars. But with this growth comes a big challenge.
Demand-Supply Gap
The demand for pre-owned cars, especially from first-time buyers, is like never before, and the players in this segment are struggling to meet it, especially when it comes to good-quality vehicles that are four to six years old. The reason? First-hand car owners are less likely to sell their vehicles within four years of purchase as they are usually under warranty, whereas cars over a decade old are closer to being scrapped and have minimal resale value.
“Our internal research shows that over 90 percent of customers are first-time buyers. Also, there’s a growing demand for cars that are just four or five years old. We are also seeing a growing demand for SUVs, in line with the new-car segment,” Partho Banerjee, senior executive officer of marketing & sales at Maruti Suzuki, which runs India’s largest pre-owned car company, True Value, told our sister publication Autocar India.
As a result, the selling prices have been rising 8-10 percent annually; there was a 30 percent surge during FY21-23, according to industry estimates.
“Increasingly, the difference between a used car and a new car buyer is diminishing. Price points for new cars used to be twice that of a used car. Now, many customers are preferring used cars as their first car,” said Volkswagen Passenger Cars India’s brand director, Ashish Gupta.
More customers want cars that are around three to five years old, but most of the vehicles available for sale are older than that. “That’s driving the selling prices.”
Still, with their relatively moderate pricing, pre-owned cars are a good entry point for first-time buyers, Banerjee added. “Our vast network helps us procure younger and low-mileage vehicles that are in demand. We also use our customer database to reach out to potential sellers and buyers of pre-owned cars.”
For Volkswagen, “approximately 30-35 percent of sales come from vehicle exchanges”, said Gupta. Its used-car business, which has been growing at a fast clip, sold nearly 30,000 units in FY24, registering a 12 percent increase. The company operates 137 facilities across India and estimates a 10 percent sales growth in the ongoing fiscal.
The company’s Taigun SUV boasts a resale value of 81 percent even after 2.5 years, said Gupta. At Volkswagen-certified pre-owned outlets, a used Polo GT fetches around Rs 10 lakh, which was the price of a new Polo GT about five years ago. Owing to this trend, this year, Volkswagen is set to rebrand its used car business, Das Welt Auto, as Volkswagen Certified Pre-owned.
But according to digital-first players, modern consumers like to rely heavily on digital technology, which reduces the need to visit dealerships. One of them is CARS24, which claimed to have facilitated used-car transactions of Rs 1,385 crore in the first three months of 2024.
And gradually, the company is seeing a significant uptick in seller participation. “What’s noteworthy is how customers actively contributed to addressing the demand-supply gap by introducing newer cars into circulation. This influx of younger vehicles also broadened the array of options available to potential buyers. With younger cars finding eager buyers within minutes of being listed, the market experienced a newfound dynamism,” said CARS24 co-founder Gajendra Jangid.
Changing dynamics
New-age startups in this space, with their robust digital presence, are attracting consumers with offerings such as doorstep delivery and money-back guarantees, among others.
While a decade ago, the market was completely unorganised, and financing was rarely available to the customers, Jangid said 60 percent of cars on CARS24 get financed. In contrast, eighty percent of the customers who buy new cars get them financed. “Banks and NBFCs don’t want to deal with the used-car market because it’s largely unorganised, and there’s no standard pricing of used cars,” he added. These factors were earlier discouraging customers from buying pre-owned cars.
Now, whenever a customer identifies a car for purchase, they consider both new and used options, said industry players. Among those who choose to buy a pre-owned vehicle, 43 percent prefer going to local dealers, 24 percent to startups and nearly 22 percent to manufacturer-backed outlets, according to the 2024 edition of the Indian Blue Book, an annual report published by Das Welt Auto and car&bike on the pre-owned car market.
And FY26 and beyond should be good for the pre-owned car market, according to Mahindra First Choice MD and CEO Ashutosh Pandey. That’s because new cars retailed in FY24 – in which manufacturers saw great sales – would start entering the pre-owned car market during these years.
Pandey said the used-car sales are typically in contrast with the new-car market. “This year has been a tough one for many industry segments. Our fortunes actually contrast with the new-car market in a way. When the new-car market was down, the used car market was up. This was the situation we were in during the pandemic. We were providing mobility solutions for a lot more people than we had supplies for. The new cars did not sell that much in those two years.”
The supply into the used car market, which is at a lag of two or three years, is at its lowest in this particular year, he added.
Moreover, the escalating prices of new cars, with entry-level models retailing in the range of Rs 5 lakh to Rs 8 lakh, are steering consumers towards the more economical options available in the pre-owned car segment. Anticipating unprecedented growth, CARS24 has estimated that the market size for used cars would quadruple from $25 billion to $100 billion.
Jangid said the trend towards used cars is stronger than ever, transforming the entire auto scene. “It’s not just tweaking the rules; it’s rewriting them in real-time. This isn’t a blip on the radar; it’s a seismic wave of change. Old habits are out, new trends are in, and we’re all players in this epic transformation.”
Also see:
Buying a used Volkswagen Virtus: what to look out for
Buying a used Toyota Urban Cruiser: what to look out for
Buying a used Hyundai i20: what to look out for
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