While Finance Minister Nirmala Sitharaman has highlighted the impact of BS-VI norms, registration costs and the millennial preference for cab aggregator services like those of Ola and Uber for the slowdown in the auto sector, a report by Edelweiss Securities Ltd attributed another factor to the slump—used car sales.
BloombergQuint reported that a note written by a team of analysts led by Chirag Shah found that “evolving buyer profiles are likely to rev up used car sales at the cost of new car sales.” The note claimed that the growth rate for the used car market was now 1.2 times that of new car sales, up from 0.8 times the latter in 2012. The annual growth rate of the used car market was 11 per cent vs four per cent that of new car sales in the same period.
In addition, 50 per cent of used car buyers were found to be between the ages of 25-34.
The report matches with existing reports on the growth rate of the used car market. A study by Mahindra First Choice Wheels, published in the Indian Blue Book, stated that pre-owned car sales were four million in 2018-20, 0.6 million more than those of new car. Within this segment, organised dealers took up 11 percent while semi-organised dealers rose to 44 per cent. The largest category within this segment is of unorganised dealers, who took up 45 per cent of the market in 2018-19.
A report by Mordor Intelligence stated that 60 per cent of used car buyers were first-time buyers, with just three per cent choosing to replace a pre-owned car with another pre-owned car.
Interestingly, the same report cited sales figures from OLX to show the volume of luxury car sales on the site at 38 per cent of the total listings on the site. The recent OLX Auto Note study predicted a 10 per cent growth rate for the segment, which is expected to reach $25 billion in sales by 2023, with millennials driving sales at 50 per cent of the buying demographic. This suggests that millennials are not only the largest buyers of used cars online (on OLX at least), but are also aspirational in their purchases.
2019 saw three used car e-commerce start-ups receive funding: CarDekho with $110 million of Series C fundraising from Sequoia India, Hillhouse, CapitalG, and Axis Bank; Droom with $10 million in Series F fundraising from its Singapore based holding entity, and Truebil with $14 million in January from multiple investors and another $1 million in September from Japan-based Spiral Ventures.
In 2018, the GST Council reduced the slabs for used cars from 28 per cent to 12-18 per cent (depending on the size of the vehicle) and also removed the cess on the same.
