The chip shortage is helping India’s used car market

New car sales dipped 13% in the financial year ended in March 2021 in comparison with the previous year, followed by one of the worst festive decades in November. Not only did the pandemic reduce demand, but so did an ongoing global chip shortage that has increased the waiting period for newer car models.

Players in the pre-owned car space believe that these struggles will work in their favour.

“The demand for used vehicles has also been boosted by supply chain issues for new vehicles where semiconductor shortage has resulted in long waiting periods for several new models,” said Singh, of Droom, who is expecting to see buyers in the country’s tier 2 and tier 3 cities turn to used cars, as well as an increased preference for “larger vehicles like SUVs.”

Additionally, inflation hovering at nearly 5% is steering customers towards used cars. ”Consumer price levels are on the rise in India owing to the post-pandemic inflation effect. Pre-owned cars are relatively cheaper than new ones and hence can save money,” said Siddharth Maurya, an investment fund manager working independently. “Moreover, now there is no stigma associated with preowned cars, which is further giving a positive push to the demand.”

According to RedSeer research, by the financial year 2025-2026, used car sales in India are expected to grow to 8.3 million units, posting double-digit growth each year.

The strong numbers are drawing more mainstream auto firms to the space. For instance, South Korean auto major Kia is expected to set up a used-car venture in India by 2022.

“If you look at the scenario today, what I understand is that the used car market is about 1.4 times the new car market and, come 2025, this is projected to be almost two times the new car market. So there is tremendous potential that we can see in this area,” Hardeep Singh Brar, vice president and head of marketing and sales, Kia India said at an event last year.

Challenges for the used-car market in India

The swell in demand led to a supply crunch in 2021 for the most popular used car models. But industry players say this issue is already resolving itself.

“The supply crunch has moderated in 2021 compared to the post-lockdown period in 2020. The increase in prices of used vehicles helped bring in more supply to the market, which made the supply crunch more manageable,” Singh of Droom, argued.

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