The curious case of used car market in India

The recent order by Supreme Court on barring the sale of BS IV vehicles from April 1, 2020 is going to pose a challenge to both the used car platforms as well as buyers as under the advanced BS VI emission standard, all the diesel cars will see a sharp increase in price. Regardless of the challenges, the growth of used car marketplaces is driving the culture of pre-owned cars in India. In fact, by 2020, the used car sales numbers are expected to touch 7 million units a year with a market size worth $ 30 billion, says Shubh Bansal.

We belong to a country where owning a car is considered as a subtle testimony to success. The different price brackets and the option of purchasing brand new as well as pre-loved cars, makes them an accessible luxury for many. But, unlike buying a brand new car, purchasing second-hand cars usually comes with a lot of apprehension among Indian consumers. This is because even though the market is brimming with choices, the used car segment is somewhat unorganised where 70 per cent of used car purchases are still made through local dealers or personal contacts.

Traditionally, the unregulated dealerships failed to make the entire purchasing process transparent, and many ended up paying more money without identifying the shortcomings in the pre-owned car. Paired with the inconvenience that followed along with the huge gap in the quality required, many aspirational customers refrained from making used-car purchases.

Just when the concept was about to lose its popularity, however, new-age online used car portals started making their way to streamline this entire segment. These portals are changing the Indian used car market in a major way by aggregating and bringing all the information about used cars including research, price quotes and comparison under one roof.

Factors driving the demand for used cars
Today, buying a car continues to be an aspiration for Indians and is the second most important purchase made after property. While earlier Indians would prefer to make only new car purchases, today many are inclined to opt for pre-loved vehicles as the industry gets more streamlined and organised. It is the wave of digitization that has initiated this shift in consumer preferences. Buyers are now able to gain access to real-time information available on the internet to research on, browse through various models, compare finance schemes, check loan rates, get their loan sanctioned and own a car within a short period of time. Moreover, with time came some drastic transformations in the Indian consumer habits wherein the car ownership tenures have reduced from 7-8 years to 4-5 years driven by the tremendous economic growth in the country that has increased the disposable incomes for many.

Meanwhile, considering the rapid investments being made by the Indian government towards the development of good road infrastructure, the condition of cars isn’t deteriorating as quickly as it used to, a decade ago, further propelling smart buyers to opt for used cars. All these factors are encouraging more and more Indian consumers to buy cars, primarily pre-owned ones to get maximum return on their investment.

Present status of the used car market
Such escalated growth in the demand of used cars is enabling the pre-owned car market size to reach a valuation of roughly $10-12 billion with approximately 3.2-3.5 million used cars being sold every year. The market is now escalating at the rate of 18-20 per cent CAGR a year whereas the organised segment is growing at about 30-35 per cent annually over the past three years. In fact, by 2020, the used car sales numbers are expected to touch 7 million units a year with a market size worth $ 30 billion. Such significant growth numbers are a result of increased reliability and the much-reduced ownership period of vehicles offered to the customers.

Impact on luxury used car purchases
Further fuelling the used car market segment is the demand for used luxury cars which is also growing fast, at a CAGR of 22-24 per cent in contrast to the 7.7 per cent growth seen in the new passenger vehicle segment, as per 2017 data. A majority of these used luxury car purchases are coming from car enthusiasts, who are now open to trying different brands but don’t wish to shell out a huge sum for a new car.

The biggest growth driver of the used luxury car segment in India, however, is the increasing purchasing power of the country’s service class that has increased manifold in the last two decades. Moreover, considering the fast-paced depreciating value of the luxury cars, the owners are always in a rush to upgrade by selling the used models. This makes a sparingly used Audi A4 or a BMW as affordable as a top-end Honda City or a Hyundai Creta.

Challenges striking the used car industry
But, as we all know, with great opportunities come great challenges. The used car industry in India too comes with its own set of cracks related to trust and reliability. Even though every used car is unique based on its condition and price, for online players this becomes a major challenge. Moreover, being a high-ticket purchase, the consumer wants a reliable platform which can also enable them to take test drives before closing any deal, another aspect which becomes crucial to success.

In fact, many consumers prefer visiting an offline store and physically inspecting the car before making purchases. For the online used car marketplaces, the catch lies in offering online discovery of a car on their platforms with full in-depth details about the condition followed by its offline availability for the final deal, integrated with smooth and hassle-free post-sales services. Unfortunately, the recent order by Supreme Court on barring the sale of Bharat Stage IV vehicles from April 1, 2020 is further going to add up to the challenges of both the used car platforms as well as buyers as under the advanced Bharat Stage VI emission standard, all the diesel cars will see a sharp increase in price. This may keep the used-car buyers away from making any purchases for some time at least.

Foreseeing the future of used cars market
Regardless of the challenges, the growth of used car marketplaces is driving the culture of pre-owned cars in India. They have managed to bring a shift in consumer attitude towards online purchases. This definitely portrays a promising picture for both the industry and the end-consumer. However, the future will depend upon knowing the customer well and integrating this understanding with smart technologies, which will eventually change the consumer mindset and create sustainable relationships, thereby instigating tremendous growth of organised players in the used car ecosystem.

About the author:
Shubh Bansal is the Co-founder and Chief of Marketing and Growth at Truebil, India’s leading omni-channel platform for buying and selling of pre-owned cars. Ever since the online portal’s inception, Shubh has prioritised delivering everlasting car buying experiences over building Truebil as a brand. With more than 3000 verified cars registered to its portal, Truebil is witnessing a 20 per cent growth month-on-month.