QZ&A

How India’s budget can keep India’s used car market humming along

Which one to pick?
Which one to pick?
Image: REUTERS/Amit Dave/File Photo
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India’s pre-owned car segment continues to thrive while auto companies around the world struggle.

And while it will be some time before sales return to pre-pandemic levels, especially with the ongoing worldwide shortage in chips, the used car industry is turning things to its own advantage.

“There are several significant growth driving factors like the urge for personal mobility due to the ongoing pandemic and global semiconductor chip shortage resulting in longer waiting periods for new cars,” Amit Kumar, CEO of OLX Autos India, an online marketplace for pre-owned vehicles, told Quartz in an interaction.

Explaining how the pandemic has boosted demand for used cars, Kumar said he expects the right kind of tax policy in the upcoming budget on Feb. 1 to help the sector shape up for the better. Edited excerpts from the interview:

Where do you see the used car business going in 2022?

A recent study conducted by us in partnership with CRISIL, reveals that the Indian pre-owned car market will reach a size of over seven million vehicles by 2025-26 and outpace the new car market. Owing to the increasing need for personal mobility, affordability, increased support from financers, and low new car penetration in India, pre-owned car sales are expected to reach 1.5x times that of new car sales over the next five years.

Do you think the budget will have something for the segment?

The government has already adopted the scrappage policy, which is helping the new car segment’s production costs to be far lower than normal. It also helps the pre-owned car market by keeping the supply chain moving.

The sector is hoping for a uniform goods and services tax (GST) rate that would help push the unorganised segment to organise, bringing in more business and improving tax leakage.

How can the government safeguard the interest of the used car players?

The pre-owned car business is 1.4 times the size of the new car market, accounting for 5-5.5 million cars per annum, with a turnover of over Rs1.75 trillion. Authorised dealers account for only 10-15% of this trade, which is also the organised sector thus paying taxes. The current rate of GST on used cars is 12% for vehicles that are of length 4,000 millimetres (mm) and 18% for vehicles above 4,000 mm.

Amit Kumar, CEO, OLX Autos India.
Amit Kumar, CEO, OLX Autos India.
Image: OLX Autos India

We would like the government to set a uniform GST rate for pre-owned cars to help dealers, vehicle owners, and the government itself to create a win-win situation for everyone.

Additionally, a lowered tax bracket of 25% could also be extended to auto dealerships and similar establishments to boost the morale and sentiments o traders who employ five million people, half of them directly.

How will electric vehicles (EVs) impact the segment?

EVs have surged in the past few years, but there is a long way to go. There are several challenges. Range anxiety is one of them. Another is charging infrastructure. Chip shortage, too, has been a concern.

While the government has given a nod to the Rs76,000 crore scheme for semiconductors under which India will set up more than 20 semiconductor units, the system itself would take around six years to perform at optimum levels.

Our recent OLX Autos-CRISIL study states that the share of EVs in new car sales is expected to grow by 4% till the financial year 2026 and will witness a major push of 20% by the financial year 2031. Considering that these challenges might be present for a limited period of time, the EV sector would inevitably join the cycle as pre-owned vehicles for the consumer to purchase, thereby positively impacting the players in the pre-owned car sector.

Do you think the pre-owned car sector will witness the price rise?

During the financial years from 2018-21, while the new car industry contracted 6% CAGR, the pre-owned car industry rose at 4% CAGR in unit terms. The pre-owned car industry clocked 1.4x volumes of the new car industry in FY21, with the price per unit growing by 5% (from Rs3.32 lakh to Rs3.49 lakh).

In the wake of the ongoing chip shortage and higher input costs, it has resulted in lower production of new cars. Hence, automakers are hiking the prices of new models. However, these developments have come up as silver linings for pre-owned car players.

Going by the trends, which pre-owned car models will be popular in 2022?

Based on the past three months, the top three brands being sold on OLX Autos are Maruti Suzuki, Hyundai, and Mahindra. Maruti Suzuki has been one of the consistent in terms of popularity and the top-selling brand on OLX Autos. The top models sold on OLX Autos are Maruti Suzuki Swift, Swift Dzire, Wagon-r, and Hyundai i-10.

How will the Omicron variant impact the industry?

As compared to the first and the second Covid-19 wave and challenges like chip shortage, the auto industry is optimistic and is expecting healthy demand. Moreover, the third wave triggered by omicron will further accelerate the need for personal mobility.

Meanwhile, the used car market is witnessing a great boom…New car production is affected due to the chip shortage, resulting in the surge in demand for the best selling fast-moving models.

Any tips for the customers who’d want to buy second-hand cars in India?

  • Choosing the right vehicle: It is imperative to know what vehicle suits one’s budget and needs.
  • Pre-purchase inspection: Always double-check the vehicle’s papers and warranty, in case it has been modified or repainted or the vehicle has been discontinued. Book an appointment with a trusted mechanic or with an authorised workshop of the brand of car, which will reveal if the customer needs to replace any part of the vehicle or immediate repairs are needed.
  • Price of the car: One should know the car’s depreciation value. Looking for a car within the 3-7 year bracket could be one way to start your search. Make sure you purchase your pre-owned car from an organised player to avoid any hassle and even reap the benefits offered by the company such as paperwork filing, insurance, and car testing among others.
  • Purchase from a certified player: Buying a pre-owned car directly from the owner might end up giving you a good bargain. However, it makes the whole process tedious, time-consuming and this is where OLX Autos comes in. We make the transactions hassle-free and prompt for the customers ensuring the best price for the cars.