The used car or pre-owned car segment, which is growing fast in the country due to the entry of organised players in the market, is likely to double in the next five years.
At present, about 3 million new cars are being sold every year, whereas, according to estimates, around 4.5 million used cars are sold annually. Thus, the used car market is about 1.3 times the size of new car market. It is growing at about 15% each year and it is expected that it would reach the 9 million mark in the next five years.
As of now, majority of the sales in the used car market comes through road-side car dealers and friends’ network. According to estimates, there are 15,000 used car dealers of which only 1,000 are organised. But more and more car manufacturers are realising the potential of the growing used car market and have therefore, started setting their own used car businesses. Many manufacturers have flourishing businesses under their own brands — Maruti Suzuki’s True Value, Tata Motors’ Assured, Mahindra’s First Choice etc. Even Audi, BMW and Mercedes Benz have increased their focus on the used car segment.
“In most of the developed countries the used car market size is about double or triple the size of the new car market. As the auto industry grows in India, the used car market would grow along,” said Sagar Das, co-founder of Autoportal, an online portal for selling and buying cars. The average ownership of vehicles is about four years in India. At the launch of Mercedes Benz India’s used card business brand, company MD and CEO Eberhard Kern had said last year that the business had grown 39% in the first seven months. He had said that, for every 100 new cars sold in India, 110 pre-owned cars are sold. Besides Autoportal, there are other web aggregators like Cars24, Carnation, CarTrade, Cox automotive etc. Das expects the business vertical would get more organised with the entry of organised players and would see some significant redistribution of sales numbers among them. According to a CRISIL report, till 2006-07, the used car market was dominated by unorganised players and customer-to-customer (C2C) contributed to more than 96% of the market share. There were only 4% organised players, which increased to 16% in 2011-12.
“A person buying a used car is largely concerned about reliability and how the purchase would turn out to be, paperwork etc. The used car industry has so far been unorganised with the majority of the sales coming in through roadside car dealers which puts the used car buyer at risk. Therefore, the challenge has been to make the used car available to the user and vouch for its reliability too,” said Das.
However, certain steps are required to boost the industry. “For example, a buyer has to pay considerably more interest rate for finance if he chooses to get a used car instead of new one. A lesser rate of interest on finance can help boost the industry to some extent,” said Das, who joined hands with Ukraine’s Anton Rublevskyy, the founder of Autoportal, to start the business in India.
At present, the certification of cars is done by individual players themselves which does not build the level of trust that might be in case if the car has been certified by an independent third party. A regulatory framework within which third parties can operate centrally and certify would definitely benefit the end buyer and would also help the business get organised more quickly by encouraging more buyers to opt for used cars.