Growth drivers of organised used cars industry

Penetration of organised players in the used cars market increases marginally

The share of the organised used cars market has gone up marginally from 8-10 per cent in 2007-08 to 10-12 per cent in 2008-09. Organised players include manufacturers like Maruti True Value, First Choice Wheels, Honda Auto Terrace, Hyundai Advantage, Ford Assured, Toyota Certified and Chevrolet OK. With 123,000 cars sold in 2008-09, Maruti True Value accounts for 70-75 per cent of the organised market share. The rapid growth in used car business is encouraging OEMs like Hyundai, Honda, Ford, Toyota, and General Motors to focus on this business. The key reason for OEMs entering into this segment is their ability to convert used car sales into new car sales through exchange schemes. The unorganised market consists largely of small brokers and used car dealers.

Currently, majority of used cars traded through the organised players fall in the range of 5-8 years as a 3-4 year old car can easily be sold among friends, relatives or through the unorganised dealer. In the next few years, the need for transparency is expected to increase the proportion of organised share in the used cars business and reduce the holding period of the new cars traded through the organised players. Dealer margins in the sale of used cars are better vis-à-vis sale of new cars. CRISIL Research estimates dealer margins at 10-12 per cent in sales of used cars as compared to margins of 4-4.5 per cent in sales of new cars. It will enable organised players to increase their dealer network.

The increasing share of the organised used cars industry is likely to drive growth in the used cars industry.

·         Entry of car manufacturers in the used car industry will enable reduction in the holding period as OEMs will lure customers through exchange schemes to generate higher demand for new cars sales.

·         The launch of many new models and hence, the reduction in the life of the models is likely to drive growth in the used cars industry.

·         Increasing share of organised players in the used cars industry will enable improvement in finance penetration. 

Growth drivers of organised used cars industry

 

• Increasing transparency: The entry of car manufacturers in the used cars segment has introduced fairness and transparency in the process of selling and purchasing used cars. It has also increased the avenues for selling used cars (through exchange schemes) and getting a fair valuation for them.
  

• Improving service levels: Growth in the sale of used cars is largely dependent on the confidence of buyers. In order to increase the confidence of used car buyers, organised players have started offering warranty of 6-12 months on used cars. In addition, the quality of refurbishment and overall service have also improved.

• Availability of many models: Due to the introduction of a large number of models in the new cars market and a reduction in the holding period of cars, many recently introduced models are available in the used cars market. As a result, the choice in the used cars market has increased, which is expected to boost the demand for used cars.

• Increase in customer aspirations: Due to an increase in income levels in urban and rural areas, the aspirations of people are rising. However, as the prices of new cars are high, many middle class customers who cannot afford new cars buy used cars that are in a good condition.

• Easier finance availability: With many organised players available in the used cars segment, and expected relaxation in the credit disbursement norms, finance penetration is likely to go up in the next few years.