The future of pre-owned cars in India

Owning a car is regarded as a status symbol in India, which is the second-largest car market in the world. While manufacturers are reporting higher sales every quarter, the pre-owned car market is looking even more promising. Frost & Sullivan conducted the research in cooperation with Volkswagen India's subsidiary Das WeltAuto to find out where the pre-owned car market stands today and where it's headed in the near future. The study estimated the number of pre-owned cars in India will rise from 3.8 million units in FY21 to 8.2 million units by the FY2025, that’s a massive jump. Here are the five demand drivers for this upsurge that we will see in the Indian pre-owned car market.

Organised OEM players

OEM support channels like Volkswagen Das WeltAuto, Mahindra First Choice and Maruti True Value, with 3000 outlets together, have eliminated the stereotype with the purchase of pre-owned vehicles and ensured trust and transparency for both buyers and sellers. The secure and hassle-free transaction along with warranty and service support has proven to be reliable against a market previously dominated by local unorganized dealers and customer-to-customer transactions. Companies such as Cars24 and Cardekho offer a seven day trial period on used cars, whereas Volkswagen’s Das WeltAuto is providing options for leasing or even exchanging your car. Customers would rather pay a fair amount for a reliable car than take a chance on a less reliable offer.

Demand in Tier 2 and Tier 3 cities

Price is the most important factor in the uptrend of the pre-owned cars in Tier 2 and Tier 3 regions. The study shows that 42 per cent of buyers in Tier-2 markets who want a pre-owned car feel that used cars are more valuable than new cars. The holding period during the first life of cars is seeing a downward trend in Tier-1 regions which contributes to availability of cars with less mileage, further boosting sales in the pre-owned market where customers prefer cars with less than 40,000 kilometres on the clock. Also, the implementation of tighter emission regulations by the traffic control authorities in T1 cities means older cars are more acceptable in rural areas as the traffic control authorities are a bit more tolerant and lenient. Plus, luxury cars which are the hardest hit by depreciation, quickly make their way towards T2, T3 and rural areas after serving their first life in T1 cities, since they really provide the status symbol factor that we’ll talk about in the next segment.

Sentiments

The desire to own a car as a ‘status symbol’ is the first and foremost reason for customers to buy a car, especially in T2 cities. This is followed by other reasons, like needing a secondary car for the family, upgrading from the previous vehicle, and even for learning to drive. As new car prices rise due to stricter emission norms, people prefer buying a pre-owned car as it can get them the desired list of features. Interestingly, the study also shows what variants buyers prefer in T1 and T2 cities. They concluded that people in T1 cities actually prefer mid-spec variants as they intend to use it only to use it for short term, and are seen more as a tool to commute in. On the other hand, in T2 and T3 cities people prefer purchasing top-spec variants for pre-owned cars because they come equipped with more features and safety, and they tend to hold on to it for longer duration. Additionally, 30 per cent of buyers even added accessories to their pre-owned vehicles at the time of purchase.

Finance and Finance partners

Payment methods can be a key element while making a purchase. In the past, only new cars would offer finance and EMI schemes, while pre-owned car sales were generally done with a lump sum amount. However, organised players partnering with financial institutions can now provide lucrative and flexible payment methods to not only get on top of unorganized players, but offer similar schemes to new car financing. On top of this, different payment methods, lease and subscription plans are being offered to entice more customers in T2 and T3 markets.

Availability of newer generation cars

With cars getting updated constantly, it doesn’t take long for a brand new car to become old. But, in the larger scheme of things, these cars still have a lot of technology and benefit from the advances in manufacturing methods and safety. As we’ve seen, it doesn’t take too long for new vehicles to make their way towards the pre-owned market. This enables pre-owned car buyers to buy vehicles with relatively new features and proper safety equipment. This also helps those pre-owned car buyers who, as we mentioned before, actually desire to keep the car for the long term. This research showed that the average age of a used car is 3.5 years at the time of purchase. With this information, customers can easily wait for a few months to get a bargain deal.

The research by Frost and Sullivan with Volkswagen Das WeltAuto also gave us more information on the specific preferences of the customers. For example, 53 percent of all pre-owned cars sold are diesel vehicles and 49 per cent of luxury pre-owned cars sold are diesels. The most important number however, is the ratio of new to used cars. It is predicted to go from 1.5 in FY2021 to 2.2 by FY2025, and while this is of course helped by all of what you read above and the increase in purchasing power for developing cities, it is accelerated by OEMs like Volkswagen taking the pre-owned car market seriously.