In a country where automobile sales figures are plummeting – and this is not all related to the absurd rise in fuel prices across the country – there is a segment which has been seeing constant growth. This is the used car market of India, partly organised (with major manufacturers certifying used cars) and mostly non-organised.
Yes, there is a hindrance of the BS VI tag, which most used cars may not have and hence will not be able to run in many parts of the country as per court orders, as well as the limit on cars 15 years and older, but that has not come in the way of the segment raking in the moolah.
According to a report prepared by Mordor Intelligence, a market intelligence and advisory firm, “The India used car market was valued at $ 27 billion in 2020, and it is expected to reach $ 50 billion by 2026, registering a CAGR of 15% during the forecast period, 2021-2026.”
A CAGR of 15%, for any industry in this atmosphere is good news. Of course, that canvas will not include the food distribution aggregating industry, as well as the IT industry and the pharma industry, which have directly benefited from the Covid pandemic. The big news here is that the “COVID-19 pandemic had a minimal impact on the industry. With the increased number of people preferring individual mobility and more finance options infused into the used car market, the market is set to grow considerably.”
There are two very visible reasons. First, of course, is the fact that buying a second had car – or even a commercial vehicle – is no more a shot in the dark with no knowledge of the past history of the car. The second is that funding for certified cars is being arranged easily by the major organisations involved in this at reasonable interest rates.
The more important factor is that the people of India still have little faith in or respect for public utilities in India and prefer personal mobility to be under their own control. Added to this was “Reduced cash inflow due to the pandemic,” which forced prospective buyers to look at alternatives, says the report.
The rise in sale of second hand cars has been, sort of, compensated (if one may call it that) by the fall in sales of new cars. Ford Motors’ quitting India is an extreme case in point, but many manufacturers are wary of letting loose new products on a market with dampened sentiments. Only a couple of new SUVs and sub-compact SUVs have hit the market of late.
It was into this decade that use car sales grew appreciably. The entire industry segment (of used cars) was in a nascent stage and rather disorganised. Says the report: “The used car market evolved in the country, with the growth of the organized and semi-organized sales sectors. The pre-owned car market recorded sales of 4.4 million units in FY2020 as compared to only 2.8 million units of new passenger vehicles in the same year.”
What has changed is also the attitude of people. This, no theoretical study might be able to point out. The apparent social stigma that used to be associated with an upwardly mobile young man, or even an older person, in acquiring a second-hand car has been on the wane for a while. Earlier, even if you could afford a larger pre-used car, you’d go for a smaller new one. That is changing.
That thought had more merit once than just the financial or social consideration. The quality of cars manufactured earlier in India was pretty bad, compared to the quality of the same car/model in another country. While excessive taxation was the primary cause (it still is), the entire chain of automobile parts suffered from the same problem, resulting in compromised quality. Companies manufacture quality cars these days; quality that last through several user, as they used to in the early days of cars. Hence there is more faith in the quality available in pre-used cars.
The report quotes the MD and CEO of Mahindra First Choice Wheels (MFCW, the company’s pre-owned car set-up), as saying that “the company’s focus on reducing the production of diesel cars, with Maruti Suzuki’s decision to exit the diesel car segment (that happened in April 2020), is also expected to increase the demand for compact diesel cars in the price and mileage sensitive Indian market.”
As the market grows, several organised players have moved in to make the vest of a good opportunity. Some of these are OLX, Mahindra First Choice Wheels, Cars24, Maruti True Value, Hyundai H Promise, and Droom etc.
A 15% CAGR seems on the low side, says the report. It says that the “Organized channel (in this segment) is expected to register a CAGR up to 22.79%.”
What has happened is that the majority of the original equipment manufacturers (OEM) have entered the used car market. Renault started the pre-owned car business in 2015, and Nissan had introduced the firm in 2017. Other OEMs in the market are Maruti Suzuki, Mahindra, Hyundai, and Toyota. Even luxury car manufacturers, such as BMW, Audi, and JLR, have their used car networks.
That is the big story for India today and there needs to be very special inputs from the government for this. A new government policy on the car-scrap industry points to a whole new segment that can be looked into. This can also accommodate the MSME sector, thirsty for some work as one disaster followed another, beating it down to dust.
Just like the recycling industry, the car scrapping industry has an important technical job of separating reusable parts, as well as those parts that could be hazardous and handle them separately. The automotive industry in India can start all over again, on a new note.