Impact of New Car Market on Used Car Market

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    Let’s find out the impact of new car market on used car market and the factors compelling people to own a car from a particular domain.

    Impact of New Car Market on Used Car Market

    In recent years, there has been a rapid growth in the used car market. This has largely been due to the increased awareness of the Indian buyer and the wide range of choices available. There are a large number of people in India who own a second-hand car as their first purchase. They get a better car for the same amount of money and it is also a precautionary step to save on cash. Let’s understand the impact on new car market on used car market and the forces which compel people to go for a car in a particular domain.

    Shortages in New Car Supply

    Impact of New Car Market on Used Car Market

    With more and more people heading towards a used car purchase, there has been a significant shortage in the supply of new cars. In 2014, for every new car, an old car was sold. It has been rapidly changing, especially after the economic slowdown in 2019 and with the pandemic in 2020 as people preferred affordable personal mobility. India sold about 4.4 million used cars in FY21 compared to 2.7 million new cars. The used car market grew only marginally from about 4.2 million in FY20, mainly owing to short supply. This poses a major challenge against the potential growth of the used car market arising because of the shrinking new car market.

    Buyers’ Matrix

    This is a table showing ‘Maruti Suzuki True Value Buyers’ Profile’ based on price.

    Price Range FY 2019-20 FY 2020-21
    0-2 Lakhs 63% 62%
    2-3 Lakhs 17% 17%
    3-5 Lakhs 14% 15%
    5-7 Lakhs 5% 5%
    Above 7 Lakhs 1% 1%

    Almost 95% of used car buyers are looking for a car within the price range of up to INR 5 Lakhs in True Value as they sell only Maruti Suzuki brands. Of this 65% go for a price within INR 2 Lakhs, and only 1% buy used cars beyond INR 7 Lakhs. However, for the multi-brand used car seller Mahindra First Choice, the price range of INR 5 Lakhs to INR 7 Lakhs contributed 22% of the total sales in FY21 compared to 17% in FY20. For Cars24, roughly 10% of the buyers go for INR 2 to INR 3 Lakhs, 15% for INR 3 to INR 4 Lakhs and 20% for INR 4 to INR 5 Lakhs and so on.

    Valuation

    Impact of New Car Market on Used Car Market

    Used cars are becoming increasingly popular due to the price and demand aspect. The valuation of used cars is nominal and accurate for another person to buy without a hitch. With a budget of Rs 5 Lakhs, a person would have a higher sense of satisfaction buying a used car which is a better option when compared to a new car falling in the same price bracket. Moreover, the person would be getting a car from a higher segment compelling them to go for a used car instead.

    There are a large number of first-time car buyers in India and they don’t have deep pockets, but they need a car which can fulfil their needs. Instead of increasing their budget, they explore the used car domain and find a suitable car which ticks all the boxes. There has been a significant impact of new car market on used car market and vice versa.

    Increase in Registration Costs

    According to the MoRTH draft notification, an individual will have to pay up to INR 5,000 for renewing the registration of an over 15-year-old car — almost eight times more than the current price. Similarly, for more than 15-year-old imported vehicles, the proposed renewal fee is INR 40,000. Also, there is some green tax planned on used cars. Experts almost negated any impact of the registration fee hike on the demand.

    “Hike in registration charges and renewal charges for used cars of over 15 years will impact the valuation of used vehicles, especially those older than 12-13 years. However, a large share of transactions are happening for vehicles registered during the last 10 years and hence their resale price is unlikely to be materially impacted,” says Ashish Modani, vice president & sector head – Corporate Ratings, ICRA.

     

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