India's automakers are now facing severe supply-related issues owing to the ongoing semiconductor chip shortage after witnessing a sharp V-shaped recovery of almost 140% in April-June 2021 as compared to 2020, an aberrant year for the industry. Experts are of the opinion that factors like rise in input costs and commodity prices resulting in longer waiting periods, along with meagre festive-season discounts, could adversely impact consumer sentiment for months to come. But for the used car market, these developments have come as a silver lining. Especially at a time when carmakers like Toyota, Hyundai, and Mahindra & Mahindra have already announced that their cars are going to cost more. Country's largest carmaker Maruti Suzuki has also announced price hike for the third time this calendar year itself. The waiting periods for car models are more than two months, and could even extend up to 7 months for models in demand.
"The used car demand has been accelerated due to chip shortage and long waiting times to get the new cars. We are seeing almost three times the number of inquiries from last 4 weeks or so. There is no impact due to fuel prices," said Umesh Hora, CEO - Used Car Business, CarDekho.
The Federation of Automobile Dealers Associations (FADA) is of the opinion that although the booking for passenger vehicles is high, but the industry is not able to fulfil that demand due to long waiting periods caused by semiconductor chip shortages. "Unlike last year when demand was a challenge, this time supply is becoming a bigger problem due to the shortage of semiconductors. The waiting period ranges from 2-3 months to as high as 12 months for certain models and variants. We are trying to tell customers to book as early as possible because there is a high chance that they may not get deliveries on the specific dates they have in mind," Vinkesh Gulati, President, FADA, said. "There is no respite yet on the semiconductor shortage and it may take another 4-5 months for things to start stabilising and supply to normalise."
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However, it's not like the used car market is completely immune to global supply-side constraints. Even though the demand for used cars has increased, Hora admits that even this market is facing constraints. "At macro level, the used car market is also witnessing constrained supply to some extent as people are not selling cars since there are long waiting times for new cars. However, the same is not affecting us as we had created significant inventory levels before festive seasons to meet the increased demand," he said. "We are looking forward to seeing bumper festive season for our used car business." The company said that it is working to expand its catalog to over 10,000 cars in the near future. After raising $250 million in its Series E funding round led by LeapFrog Investments last week, the 14-year-old Jaipur-based start-up attained the unicorn status. The company has a catalogue of more than 3,000 certified pre-owned cars for online purchase.
Cars24, one of the largest players in the market, points out that there's a big use case for used cars in India where there are 2 cars per 100 people. "It's an affordability issue. We are allowing people to own a car," Vikram Chopra, co-founder and CEO, Cars24 told BusinessToday.
The Gurugram-based firm boasts of a selection of 20,000 cars and is valued at $1.84 billion. Chopra said that just like the new passenger car market, he's seeing a consistent growth in demand in the used car space. "The second-hand car market is derivative of the primary market. Everything that happens in new cars impacts the used car market. It may be with some lag. For example, all the price increases that are being taken in the new car market in the last few years, that will start impacting the pre-owned car market from next year," he said.
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The supply for new cars has taken a hit this festive season but it hasn't affected the pre-owned car market as badly. "On the contrary, this is creating a strong demand for pre-owned cars as they are more affordable. We are seeing a strong growth this month leading to Diwali," Chopra added.
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.
"Definitely, the used car market is witnessing a great boom currently. There are several significant growth driving factors like the urge for personal mobility due to the on-going pandemic and global semiconductor chip shortage resulting in longer waiting periods. In the last couple of years, we have witnessed a surge in e-transactions on online used vehicle platforms, giving a massive boost to the ecosystem," said Amit Kumar, CEO, OLX Autos India.
Kumar agrees that there indeed is an upswing in demand for the used car market. "Whenever there is an economic downturn, people gravitate towards pre-owned goods as they are cost-effective. Between Q4 FY21 to Q2 FY22, sales of fast-moving models like Alto 800, Swift, Scorpio, Santro, and WagonR have gone up on our platform at a promising rate," he said.
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