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Evolution Of Used Car Market In India

Posted on October 30, 2022 by admin

State of the Market

With 3 million+ used car sales, India’s sell my car used car market has outpaced the new car market which could only manage about 2.5 million units. This puts the new car to used car sales ratio at about 1:1.3. While this ratio seems fairly optimistic for the industry, it’s still way behind the Western levels of 1:3 in the UK and US, and around 1:2.2 in Germany and other Western European economies.

However, the market has been aggregating a compound annual growth rate of 15-18% in the last five years. The CAGR is expected to shoot up to around 22-25% by 2018. Experts have pegged the ratio of new cars to used cars sales to become 1:2 by 2017-18. Sales of used cars are, therefore, likely to more than double in the next 5 years.

A research by CRISIL found that between 2008 and 2013, sales of used cars doubled to 2.6 million units leading to a fourfold increase in the size of the market to Rs. 520 billion. The report further estimated the sales of used cars to reach around 8 million by 2018 which will put the valuation of the used car market at Rs. 1.5 trillion. Whereas the sales of new cars are expected to reach around 4.2 million units.

Business Model

The market is made up of competitors with three distinct business models. The transaction parties include franchised and independent dealers who take on the financial risk of buying and selling cars. The transaction facilitators – online sales platforms and online matchmakers – depend on fees from enabling sales transactions. The information providers offer insights into pricing trends and details of the condition of specific cars.

Used cars are sold to end customers via these three channels. A majority of the transactions are managed by the private sellers themselves. The second major channel of transaction includes franchised dealers. Independent dealers and other online sales platform make up for the rest of the total sales.

Though the market is still heavily dominated by the unorganized players, the share of organized players has been on the rise. Growing at a compound annual growth rate of 40%, organized segment now accounts for about 18% of the total market and is expected to rise to around 25% by 2017-18.

Key Market Trends:

 

  • Changing Demand

 

A majority of the total automobile sales in India consist of 2 wheelers. Among this population, many people are looking to upgrade from a 2 wheeler to a 4 wheeler. Further there is a growing economic and social need among buyers in the age group 25-40 to own a car. These first time buyers and 2 wheeler owners looking to upgrade mainly make up for the demand in the used car market. With the increased availability in the number of used cars available and the increasing presence of organized players in the market, more buyers are likely to enter the market for used cars. Vehicle certification and car history reports, warranty and after sales support are going to bridge the earlier existing information asymmetry and are likely to be the key drivers behind the demand.

 

  • Changing supply

 

Average replacement cycles are falling. According to a survey, in 2006-07, buyers held onto their new cars for as long as 54 months (4.5 years). This fell to 48 months (4 years) in 2011-12 and is expected to fall down to 42 months (3.5 years) in 2016-17. This increase in the frequency of replacement will allow for an increase in the supply of used cars as old as 3-4 years. Also, with improvements in the car quality (resulting in a longer life span), demand for used cars is poised to increase in the near future.

 

  • More online transactions

 

Buyers of used cars are slowly but surely turning to the Internet to research and buy cars. Consumers are arriving at dealerships armed with more information about specific cars and a better understanding of market prices, and they are visiting fewer dealers before buying their chosen car. The rapidly increasing use of mobile devices is boosting this trend: More than 20 percent of all Web searches related to “used-cars” are now conducted on these devices. Traditional brick-and-mortar dealers will be forced to follow this audience online, perhaps offering used cars through online marketplaces that provide referrals to dealers with binding offers – a model already available in the United States.

 

  • Increased transparency

 

The availability of information on the Internet has already increased the efficiency of the used car market significantly, providing greater transparency into prices and even the condition of specific used cars. Growing use of online transaction platforms will only boost market efficiency further; indeed, digital intermediaries have the opportunity to shape the structure of the industry as their influence grows, accentuating competitive pressures and revealing the disparity between the most efficient buyers and sellers and the laggards.

 

  • Growing importance of convenience

 

With the advent of increased internet penetration and the continued distrust in the validity of claims of Independent dealers, more and more private sellers are looking for alternative- fast and hassle-free ways to sell their used cars. This trend will have a real impact on the used car market as private owners turn to newer online business models to sell their cars. Offering fast, guaranteed transactions, online buying platforms are particularly likely to benefit.

 

  • Growing market penetration

 

The vehicle ownership rate in India stands 18 per thousand people. At 2 per 100 people, this is one of the worst in the world. With the increasing GDP per capita and an increase in the percentage of rich households, the ownership rate is likely to change for better. This presents an incredible opportunity for OEMs to expand their production in India. In US, ownership rates are as high as 95% and around 60-70% in Western Europe.

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