Pre-owned Cars Gains Momentum Amidst Covid-19 Pandemic

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The COVID-19 pandemic has turned the world on its head bringing businesses to a grinding haltplunging revenues, displacing workforce, sending stock market nose-diving and leaving gaping holes in economies, worldwide. Job losses impacting income of millions of working personnel has left them with lesser purchasing power. 

As the country limps out of lockdown and workforce getting back to their workplaces, mobility will remain as relevant as ever. Those wanting to change their cars have put on hold.With spending on luxury items like cars, the automobile industry has taken its worst hit as those looking to buy / change cars have put on hold the decision owing to the effects the pandemic has had on income. But the silver lining to the dark cloud is that the demand for
pre-owned cars has witnessed an uptick amidst the pandemic. If the initial statistics are anything to go by, this trend is likely to move northward. 

According to statistics released by the Society of Indian Automobile Manufacturers’ (SIAM), pre-owned vehicle segment accounts for 18% of the market share registered estimated sales of 4.4 million units in FY 20, as per data collated by ETAuto, whereas the new passenger vehicle slaes in FY 20 stood at 2,775,679 units, dipping below the 3 million sales unit mark for the first time since FY17. This clearly indicates the growing acceptance of pre-owned cars. At the same time, estimate show that the Indian pre-owned car segment is less than even 10% in size to that of the US used cars industry, yet growing at a CAGR of 15% in the last five years.  

So, what explains the preference for used cars? Let us deep-dive into this and under this shift. 

Pricing and shift in consumer demand and perception: 

Indians are predominantly a price conscious consumers. Owing a brand a new car comes with its baggage of elaborate buying process, investing time in evaluating multiple brands, assessing the price-value equation…to name a few. The Bharat Stage VI vehicles has pushed up the price of cars. On the contrary, pre-owned cars offers a wide choice of brands to choose from and are comparatively cheaper vis-à-vis new cars. Depreciation is another factor for the shift in preference towards pre-owned cars. Typically, cars have high depreciation rate – sometimes even 30% in the very first year itself. Such high depreciation rate on a high value car has an impact on the mind of the customer, which makes buying an used car a better value for money option. Coupled with this, there is also a growing societal acceptance for pre-owned cars. They are bought with equal fervour and happiness as a new car. 

Reduced period of ownership of cars:

Owners typically sell their cars when it is 6-7 years old; whereas buyers prefer to buy a 4 year old car. With newer models of cars being introduced at a faster pace, the need to own the latest models, ownership period has reduced to 4 years which augurs well for the buyer. According to statistics, the ownership period is expected to dip further to three and half years which will further give momentum to more people looking to buy pre-owned cars.

Advent of organized players in this space:

The pre-owned cars space has traditionally been an unorganized sector with numerous players operating from a garage. The rising popularity for pre-owned cars has witnessed many organized players entering this space. According to estimates, the organized sector in this space stands at 18%, up from 15% about 2/3 years ago.

Growth of online presence:

With more and more pre-owned car showrooms having an online presence, the search for the right kind of car within the budget is today at the tip of the finger saving time, energy and money for the buyer.

Increased demand for used luxury cars: 

While on the one hand the ownership periods of normal cars has come down from 6 years to 4 years, the ownership period of luxury cars has witnessed a further dip. With a little effort, patience and careful evaluation, buyers will be able to lay their hands on a well maintained luxury car at almost the same price of a new sedan. 

With the pandemic likely to be still around for the foreseeable future, the economy and industries getting back to pre-COVID stage is going to be an equally long haul one and therefore organization’s revenues and workforce income getting back to pre-COVID will be pushed further. Needless to say, pre-owned cars step in to satiate the desire of individuals to own a car.

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