Pre-owned car segment reports growth, anticipated to grow to 11 per cent

Thursday 12 July 2012, 10:05 AM by

Sales figures of the used car market in India are showing a favourable trend, irrespective of the fact that the sluggish market condition has affected the business of new models. In India, the pre-owned car market is almost the same size as the new car segment. According to an industry expert, the used car segment will expand by 10 to 11 per cent before the end of 2012, in sharp contrast to 3 to 4 per cent sales growth predicted for the new models.

Rajeev Dubey, President, Group HR, Aftermarket sector and Corporate Services for Mahindra and Mahindra (M&M), shared similar sentiments and was quoted as saying that “Typically, we have seen a 5-7 per cent differential between the sales growth in the used and new car markets. This year, the organised sector in the used car business should grow about 15-17 per cent.”

The sales in the used car market are quite impressive with minimal impact of the adverse market condition, which has significantly affected the sales of new cars. In the current scenario, the potential of used cars is much higher than that of new cars, which is similar to the trend exhibited by most of the auto economies. Elaborating the statement, Dubey said, “In the US, for instance, for every new car sold, the industry sells around 2.8 used cars. In India, that ratio is still 1:1. As the economy develops and more new models are introduced, people change cars more frequently and the ratio of old to new also keeps growing.”

In spite of the fact that there are quite a few models in India’s used car market and the growth rate is not disappointing either, the industry still faces some inconveniences. One of the major issues faced by the buyers relates to improper financing facilities, which have not improved much over the years. The interest rates offered by the vendors on used cars are usually higher than those provided for the new cars. Although the well-established names, like Maruti True Value and Mahindra First Choice are making their way forward, a larger stake is still being controlled by the local vendors. A major share of around 60 per cent is handled by Customer 2 Customer (C2C) proceeds, whereas 28 per cent is operated by the neighbourhood vendors.

Expressing his opinion on this, Dubey said, “Right now, only 11% of the used car market is organised and that too is dominated by Original Equipment Manufacturers (OEMs) whose basic purpose is to boost the sale of new vehicles through exchange programmes.” Mentioning about the interest rates, he further added, “That differential is going down and will narrow down further as the size of the organised market in the used car space grows.”

Seeing the growth in the used car segment, most of the well-established auto makers are joining the bandwagon. According to Dubey, “Long-term, the growth rate of the used car market will definitely be higher than the new car market.”

The used car business of M&M, Mahindra First Choice is worth mentioning and sort of a benchmark. For the current year, the company anticipates sales of 45,000 units. The division registered sales of 34,000 units in 2011 and 28000 units in the previous year. It is looking forward to achieve the 100,000 mark by fiscal 2015. Stating the immediate target of the company, which is 45,000 units, Dubey concluded, “We will grow by 35 per cent this year.”