Exclusive: Why is pre-owned car market outpacing the new car market in India?

Considering the steep surge in the demand for used cars, the pre-owned car market is outpacing the new car market, here's why?

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The last few years have witnessed consumers develop a newfound appetite for pre-owned or used cars. As a result, the pre-owned car market has accomplished an exponential growth, with almost every pre-owned car seller generating profits. As per a recent study – the pre-owned car market that is outpacing the new car market is growing at 15 percent in FY22 and further expected to grow at a CAGR of 12-14 percent over the next few years. In FY21, the pre-owned car market stands at 3.8 million units which is predicted to reach more than 7 million vehicles by FY26.

Considering the steep surge in the demand for used cars, the pre-owned car market is outpacing the new car market. Touted as the sunrise sector, a multitude of factors are driving the pre-owned car market -prolonging pandemic, changing consumer demographics, availability of easy financing options are the major contributors to fuelling the brisk volume growth of used cars.

Increased preference for personal mobility

The Covid-19 crisis saw a steep decline in the use of public transport due to restricted availability and the growing consciousness of people for social distancing and personal safety. As a result, consumer demand, specifically in non-metro cities, has shifted towards personal mobility mediums. People from diverse income groups, especially first-time and non-metro city buyers prefer better alternatives in terms of pricing to meet their mobility needs. This has propelled a huge swing in favour of pre-owned car market.

Digital integration for democratization

Even though the pre-owned car market is twice as big as the new car market, the sector is still unorganized. Some players focus on online lead generation, some concentrate on the physical sale of cars through independent organized and unorganized dealerships and the remaining segment focuses on the (C-2-B) market. Hence, new-age auto tech platforms are undertaking the initiative to organize the market by taking the sale of pre-owned cars online and bridging the gap between physical and digital sales. These digital platforms backed by physical outlets offer a virtual reality view, 360-degree view, detailed vehicle history, lucrative finance options and after-sales services to enhance customer experience.

Shift in customer behaviour & aspirations

Over time used cars have gained more acceptance in India as people are becoming more conscious about their finances and vehicle’s value. It is no hidden fact that a new car depreciates about 30% in the first year itself. As a result, pre-owned cars appeal better to economically conscious and price-sensitive customers. Apart from this, the young consumers have shown a keen interest in luxury and premium cars. The availability of pre-owned luxury cars at affordable prices has lured many buyers into buying a used car.

Shorter ownership period

In the past 10 years, the car ownership period has contracted from 6-8 years to around four years and is further expected to decrease to 3.5 years. Intermittent launching, fast-changing needs, etc., have triggered a faster replacement cycle. Consequently, the pre-owned car market has witnessed an influx of well-maintained, relatively newer used cars. With a few repairs and fixing, these cars are made almost new but at much lower prices which the customers find very lucrative and affordable.

Rise in organised players

The pre-owned car market has primarily been an unorganised segment in automobile industry. It is still branched out into multiple players. There was a time when the leading car manufacturers such as Maruti Suzuki, Tata Motors, Mahindra & Mahindra, etc., monopolised the used car sales. But the arrival of new-age auto tech startups has not only driven the sales of pre-owned cars, but is also bridging the gap between physical and digital sales.

Conclusion

Consumer behaviour and aspirations have undergone significant changes due to digitization, pandemic, shorter ownership periods and easy financing options. Be it the need for safer mobility options, the online presence of pre-owned cars, faster replacement cycles or demand for luxury cars- the consumers are finding pre-owned cars much more convenient and affordable. As a result, when new cars sales took a hit during the pandemic, pre-owned car sales not only accelerated but outpaced the new car market.

This article is authored by Vaibhav Sharma, Founder & CEO of CarzSo. All views are personal.