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Used-car Business Driving Up Sluggish Auto Industry Sales Growth

Published: 05th February 2016 03:40 AM  |   Last Updated: 05th February 2016 03:40 AM   |  A+A-

KOCHI: Of late, the used-car business has been one of the bright spot in the automotive industry that is witnessing slow growth in the last few years.

Majority of the first time car buyers in the country feel that a used-car is a cool thing to own. One used car for every new car was the industry norm in 2006-07. Now, for every new car, 1.2 used cars are sold in the country.

But experts point out that for every new car 1.8 to 2 used cars will be sold in India in the near future. It means when 10 new cars are on the road, 18-20 used cars (with new owners) also hit the road. In developed countries the ratio is 3:1 (ie, three used cars for every new car), which translates into the huge potential in the used-car business segment.

used.JPGManufacturers are also focusing on the dealer network, branding and reliability of processes in this segment that made it possible for the customers to consider used cars as a viable option.

Average replacement cycle of cars fell from about 54 months in 2006-07 to about 48 months in 2011-12. As car makers promote sales of new models through exchange offers for old cars, replacement cycles are likely to further fall to about 42 months by 2016-17, according to a Crisil report.

“The average price of new cars sold in India is Rs 7.5 lakh whereas the used car price is Rs 3.75 lakh. The B segment cars are the favourite of the customers. The age group of our used car customers are 25-35 years. Aspiration to own a new car and affordability are the key factors which drive the industry now,” said Nagi Palle, Chief Executive Officer and Managing Director, Mahindra First Choice. He added that the segment is growing at the rate of 35 per cent annually.

It is said that the increasing presence of organised used car companies will also continue to drive used car sales.

Crisil research expects annual used car sales to treble to about eight million units by 2016-17.

“With formal networks growing, it is increasingly becoming cool to buy used cars. Among the urban buyers, there is a clear preference for branded players who enjoy a large share of the market. This is seen across the regions, suggesting the coming of age of this business,” said Kumar Kandaswami, Partner, Deloitte India.

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