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Used car sales to zip past new ones

By Motortrend India Staff   |   15 August,2011

India’s used car market, which has so far faithfully followed new car sales, is now all set to zoom ahead as a sentiment slowdown hits car sales in autoville. According to industry estimates, the used car market, which is currently around 18 lakh units a year, is expected to clock anywhere between 20 percent and 25 percent growth in the next five years, vrooming beyond the 40-lakh mark by 2015. Of this, the organized sector is likely to clock a 35-40 percent growth.

The good news for the used car business is that it is relatively less affected by the sentiment downturn that is now snuffing out growth in the new car market. India’s new car sales, earlier expected to clocked anywhere between 13-15 percent growth this year, is likely to manage single digits, say industry insiders. But that isn’t what used car marketers are expecting for themselves.

“Currently the new is to old ratio in India is 1:1.1,” says Jagdish Khattar, CEO of Carnation, a multi-brand auto sales and service venture. “So the old car market will grow much faster than the new and within that segment the organized sector will grow the fastest to bring the ratio closer to the 1:2.5-3 new versus old cars. That’s the norm in developed markets.” Khattar says the used car base is still small enough to clock 20-25 percent growth where the organized sector should trot up 35-40 percent. Given that the organized sector’s share of the market is still very small, around 10-11 percent, that growth doesn’t seem too ambitious.

Rival multi-brand used-car retail company Mahindra FirstChoice says the current clip in old cars is already breathtakingly ahead of the new. “The organized part of the used car market is already growing at a 30-35 percent clip of which the certified organized segment is growing the fastest,” says Rajeev Dubey, president, group HR and after-market sector, which covers Mahindra FirstChoice.

Industry experts admit the old car market will be hit much less than the new in the ongoing sentiment slowdown. “In the US, when new car sale slowed down, used car sales picked up,” says Dubey. “In India so far the two have moved in tandem but the magnitude of the impact will be less on used cars. There will be some hit on the demand but since people will hold on to their old cars as they put off buying new ones, the supply side will also dry up a bit and two will neutralize each other,” he says.

What may further help the used car market is its consumer demography. “The maximum number of used car buyers are first time car buyers,” says Khattar. That and another interesting segment, luxury car buyers, should keep the market buzzing through the slowdown. “A lot of luxury car buyers prefer to make use of the depreciation to pick up a bargain,” says Khattar. A 15-month-old Merc or BMW, which has done 15,000 km will be available at anywhere between Rs 25-28 lakh, compared to its sticker price of Rs 37-45 lakh.

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