Auto Zone: Pre-owned car market sees strong growth

Vijay C Roy

WHEN Gurugram-based Ankit Kapoor wanted to purchase a pre-owned car, he visited a few dealers in the unorganised sector but was dismayed to find that the cars were either overpriced or in a bad condition. After many such visits, he came across two major problems — non-standardisation of prices and a lack of warranty.

Major players

OFFLINE

Maruti True Value

Mahindra First Choice

Hyundai H Promise

ONLINE

Spinny

Cars24.com

Droom Technology

Cardekho.com

Carwale.com

Cartrade.com

Olx Auto

He had almost given up on the idea when a friend suggested some of the players in the organised space — a growing segment that includes new-age tech startups. He was not only able to get his dream car but was also bowled over by the transparency and easy availability of finance and warranty, with all supporting documents.

Though the unorganised sector still dominates the pre-owned segment, the established original equipment manufacturers (OEMs) and new-age tech startups’ foray into the organised sector is transforming the way used cars are being bought or sold.

Market size

The second-hand car market in India has been witnessing a strong growth over the past few years. The organised sector accounted for a 20 per cent share of the total market in FY 2022. The pre-owned car market has been experiencing robust growth, surpassing even the new-car market. This sector is anticipated to achieve a 12-14 per cent compound annual growth rate (CAGR) over a specific period of time in the coming years, leading to a market size of more than 70 lakh vehicles by FY 2026, up from 38 lakh units in FY 2021.

“During FY22, around 44 lakh used cars were sold in India, with only 8.8 lakh through the organised channels as per the Indian Blue Book,” says Niraj Singh, founder and CEO, Spinny, a used-car retailing platform. The total number of passenger vehicles sold in the domestic market during FY 2022-23 was 38.9 lakh units.

The organised sector’s share is projected to rise from 20 per cent to 45 per cent in the next five years, he adds. Currently, used-car sales outnumber the new-car sales by 1.3 times.

As per Cars24 co-founder Gajendra Jangid, currently the annual new-car market consists of around 38 lakh vehicles whereas the pre-owned car segment has already surpassed this number at 50 lakh units.

The pre-owned luxury car segment has seen a substantial upswing, with an estimated annual sale of 60,000 units, exceeding new luxury car sales in India by 1.7 times, says Niraj.

Emergence of the organised sector

In the past, the market was fragmented, with independent dealers charging hefty commissions from buyers. Another major hurdle was that the buyers had to physically visit numerous outlets to check what was available for sale. Now, any available car, model, price and other parameters are just a click away. As a large chunk of first-time buyers are mainly youngsters, they want hassle-free documentation, besides preferring to buy vehicles from a trusted source. The organised sector is ticking all their checkpoints, transforming their experience by offering warranty, free services, genuine spare parts, hassle-free documentation and immediate transfer of ownership.

It was in 2001 that Maruti established the country’s first organised used-car dealership, Maruti True Value. With 22 years in the industry, it has achieved a milestone of selling 50 lakh pre-owned cars.

The share of the organised sector in the used-car market has grown from 4 per cent in 2007 to 15 per cent in 2017. Around the same time, the rise of e-commerce facilitated the entry of many online platforms in the pre-owned car segment. These e-platforms form a sizeable number though the prominent ones are less than a dozen.

The organised sector in the used-car market can be divided into two categories. The first category comprises players backed by OEMs such as Maruti True Value, Mahindra First Choice Wheels and Hyundai H Promise.

The second category features online players that include many new-age tech startups such as Spinny, Cars24.com, Droom Technology, Cardekho.com, Carwale.com, Cartrade.com, and Olx Auto. Industry experts believe that customer-friendly digitisation, enhanced transparency and trust — all these parameters have powered the growth of the organised players in recent years.

Rising customer inclination

The demand for used cars in India is being fuelled by several key factors. “Affordability remains the top reason, allowing individuals to purchase vehicles at a lower cost compared to new ones. The absence of waiting time is another appealing factor, allowing buyers to drive away with their chosen vehicle immediately,” adds Jangid.

A True Value spokesperson says besides affordability, used cars offer slower depreciation rates, resulting in lower insurance costs. This growth is fuelled by overall low-car penetration, increasing disposable incomes, and lower car ownership per household. The propensity among millennials to frequently change cars has also contributed to the attractiveness of buying used cars as a viable option.

Tier-II, Tier-III cities join the bandwagon

According to Spinny’s latest survey report, there has been an extensive demand for used cars, mainly from Tier-I and Tier-II cities. At least 65 per cent of these buyers are first-time buyers (January to April 2023), up from 60 per cent in 2022.

The non-metro cities are not far behind. “This is due to improved Internet access even in Tier-II and Tier-III cities that has built trust and transparency for online buyers. Online retailers also offer attractive deals and perks. The combination of online services with physical hubs is making the entire process, from searching to payment, clear and convenient,” says Niraj.

Coping with challenges

Operating in the pre-owned car segment comes with its own challenges, considering the landscape has transformed over the past decade. According to Niraj, earlier assessing the quality of vehicles was a major challenge. Inspection reports, provided offline, lacked standardisation, leaving buyers uncertain about the car’s condition. Pricing was often not available publicly, making it challenging for buyers to determine a fair price.

Moreover, establishing trust with sellers was also difficult. Buyers had to rely on word of mouth or a seller’s market reputation to gauge his/her credibility. With the digitisation of the process, many of these challenges have been addressed, leading to a more streamlined and customer-friendly experience.

According to a Maruti True Value spokesperson, the current challenge for organised players in the used-car market is their relatively small share in the market. Taxation complexities, however, also remain an obstacle.

The way forward

In recent times, the pre-owned car market in India has witnessed remarkable growth. According to a Maruti Suzuki spokesperson, with a population of more than 1.3 billion, India has a huge potential customer base for the used-car market. Currently valued at $27.3 billion, the market is expected to reach $56 billion by FY 2027.

Before buying

If you are planning to buy a pre-owned car, keep in mind the following:

• Set a clear budget that covers the car’s cost and related expenses.
• Research the specific car’s reviews and history to ensure reliability.
• Have a mechanic inspect the car for hidden issues.
• Check the mileage and estimated potential maintenance costs.
• Test drive the car to assess its performance.
• Evaluate the vehicle’s overall condition, inside and out.
• Make sure the ownership paperwork is complete. If possible, consider certified pre-owned cars with warranty.

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