Cars to get more expensive in the New Year, might benefit used car market

While price increases at the beginning of the New Year is a common practice in the auto industry due to exchange-rate fluctuations, rising input costs, etc., but this time it could hurt consumer sentiment more than usual. That’s because some carmakers have already increased prices this year to offset rising raw material and freight costs. India’s largest carmaker Maruti Suzuki, for example, had already hiked prices across various models thrice in 2021. The company has once again announced a price hike from January 2022 which will be applicable on all Maruti Arena and Nexa models.
 

This price increase, experts say, will help turn the entry-level car buyer to the used car market. Even while the industry was seeing semiconductor shortages in the last few months causing supply-side issues, used car market saw a sharp growth. Plus, many carmakers are reporting longer waiting periods. The waiting periods for car models are around two months, and could even extend up to 7 months for models in demand. This could adversely impact consumer sentiment for months to come, analysts say. But for the used car market, these developments have come as a silver lining.
 

India's 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, according to Mordor Intelligence. The sector today is highly fragmented and unorganised as a bunch of Indian start-ups like CarDekho, Cars24, Droom, Spinny, and CarTrade, etc. are competing for the larger share of the pie. Constant price hikes might benefit these start-ups in the short term by creating a strong demand for pre-owned cars as they pose as a more affordable option.

"Post the pandemic, we have seen a growth in the demand for buying pre-owned cars online and it’s at an all-time high as they are more affordable. We have witnessed these across geographies we are present in- UAE, Australia & Thailand- it is a global phenomenon," said Gajendra Jangid, Co-founder & CMO, Cars24.

Other carmakers to introduce price hikes are the likes of Tata Motors, Honda Cars, Toyota, Renault etc. Homegrown carmaker Tata Motors, for instance, has said that both their lineup of commercial and passenger vehicles will be affected from price hikes from January. Their CVs will be affected by 2.5 per cent while they didn’t quote an exact figure for their PVs. The company said that the hikes will be applicable across all of the models, both electric and ICE, including its latest launch the Punch.

Skoda Auto Volkswagen India has also announced increase in prices. Skoda Kushaq, Octavia and Superb will see a 3 per cent price increase while Volkswagen has said that a price hike ranging between 2 to 5 per cent will be seen on the Polo, vento and Taigun, effective from January 1, 2022.

Even luxury carmakers like Mercedes Benz have announced a price hike of 2 per cent on some models. Customers who have booked their MY2021 models, A-Class, GLA and E-Class will be given price protection. Another luxury carmaker Audi said that it will be increasing its prices by 3 per cent on its entire range. 

Jangid is of the opinion that this decline in car manufacturing, and subsequent price increase, has not only fed into the growth of the used cars industry, but has also increased the demand for quality used cars.

"Now that the auto industry is facing the chip shortage crisis, the new car production is seeing a significant decline in the past few months. Hence, with the continuous increase in the demand for used cars, there is also an increase in demand for ‘quality’ used cars. We are equipped to cater to this demand with the launch of seven Mega Refurbishment Labs and are confident this will only accelerate our growth," he said.