India’s pre-owned car market is vrooming amid an auto slump

Buying in budget.
Buying in budget.
Image: REUTERS/Danish Siddiqui
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At a time when India’s auto sector is facing its worst slowdown in years, the second-hand market is booming.

The pre-owned car market clocked a year-on-year growth of up to 12% in financial year 2019, according to a recent report in mint. Used car dealers such as Mahindra First Choice Wheels even had a bumper year with up to 50% growth year-on-year.

“India has a massive potential for the used-car business because of the large market size. Used cars already outpace new cars in the market by a ratio of 1:1.3,” a spokesperson for Gurugram-based OLX India told Quartz. 

These numbers stand in sharp contrast to the single-digit growth (2.7%) in the sale of new passenger vehicles for the financial year ended March 2019—a five-year low.

The industry is yet to recover from the slump. Passenger vehicle sales in May this year witnessed their steepest fall (20.6%) since October 2011, data from the industry body Society of Indian Automobile Manufacturers (SIAM) show. 

As the Indian economy slows and consumers clam up, used cars are becoming a viable alternative for a host of reasons.

Why so popular?

“Pre-owned cars remain a better deal since they address the consumer need on two fronts—the plethora of choices available and the pricing advantage,” the OLX spokesperson said. “Data from our findings suggest that used cars can be almost 20%-30% cheaper in comparison with the new cars.”

There is also the possibility of bargaining on the stated price tag.

Besides, the desire to own the latest model has also contributed to growth, say analysts. “Consumer aspirations are growing in countries like India. People want to buy premium cars with better features with an inherent desire to upgrade in life,” the OLX spokesperson said. “We have observed a pattern where users are selling their barely year-old cars at a significant discount.”

Growth potential

India’s used car industry is already bigger than the new car market, according to a study conducted by Mahindra First Choice Wheels, published in the third edition of the IndianBlueBook, a pricing guide for vehicle valuation, in April.

To tap the growing pre-owned market, many online marketplaces for vehicles are shifting to brick-and-mortar showrooms.

Gurugram-based Girnar software, which owns CarDekho, for instance, is investing Rs200 crore ($29 million) to expand its used-car dealerships network to 200 stores over the next two years. Since, January this year it has set up 31 stores in Delhi National Capital Region, Bengaluru, and Jaipur. On June 25, it added four new stores in Pune and one in Lucknow and is soon planning to enter Mumbai.

CarDekho is the third player in the segment to add physical stores to their online business. Cars24 and OLX Cash My Car have already launched physical dealerships.