Demand for used cars revving up as sales expected to grow 8.3mn units by FY26
For a long period of time, new car buyers ruled the Indian automobile segment. However, with the global pandemic in tow, more people are opting for used cars as they prefer personal mobility.
For a long period of time, new car buyers ruled the Indian automobile segment. However, with the global pandemic in tow, more people are opting for used cars as they prefer personal mobility. This has paved the way for a bright future in the used car market. In fact, a number of credible research reports show that by FY26, used car sales are expected to grow to nearly 8.3 million units, at a healthy CAGR of nearly 11 per cent. By some other estimates, the India used car market was valued at $27 billion in 2020, and it is expected to reach $50 billion by 2026, registering a CAGR of 15 per cent between 2021-2026.
India's used car market is actually experiencing disruptions, thanks to more reasons than one. The steadfast growth in the used car segment can be attributed to factors like data monetization, in-vehicle connectivity, subscriptions, rental, charging, long-term maintenance packages, reduced period of car ownership among the millennial demographic, transition from BS IV to BS VI, GST rates differential on purchase of used cars versus that of new car, among others.
Significantly, as far as India's car market is concerned, the used car segment is the fifth largest in the world. And sector analysts are of the view that a steep rise in the used car market and the addition of technology by the main players can only mean one thing — a structural change is expected, one that will witness the used car market's steady and tech-driven growth. They also think that the India's used car market is picking an exceptional pace thanks to new found profit centres. Therefore there is no doubt whatsoever that immense opportunity awaits this particular segment within the Indian automobile sector.
These opportunities and positivities notwithstanding, the Indian used car market is not without challenges and pitfalls. There are inherent challenges. For instance, highly fragmented dealer segmentation and unorganized dealership models are some of the major pitfalls. The India used car market is segmented by vehicle type (hatchbacks, sedan, and sports utility vehicles), vendor type (organized and unorganized), and fuel type (petrol and diesel).
According to transnational consulting firm-Redseer, the used car market comprises 30K dealers as of now, making it an extremely fragmented space. Of the existing dealers, close to 45 per cent are commission agents or brokers. Most of them have no physical space of business, and operations are bound to be unorganized. Unorganized dealers have low productivity as they face price led competition from unorganized brokers or C2C transactions.
There are way-outs as well. Digitisation seems to be doing its part to overcome these challenges. Key players are adopting digital best practices and incorporating them effectively in their dealership models. It is estimated that most new car dealerships are now connected online via the OEM online network, and benefit from targeted leads (via OEMs and auto portals). Out of the nearly 30K used car dealerships, at least 4K are spending consistently on online auto portals.
The good thing, at the end of the day, is that India's used car market is experiencing digital maturity. With the help of transparent, organized, and efficient and tech-driven dealership models, the used car segment can overcome the existing pitfalls. Competitive intelligence, high-quality data, solid user experience are the need of the hour.