The domestic passenger vehicle industry in India may be reeling under its worst slowdown in sales ever but there has been no impact of the consumption decline in the economy on sales of pre-owned cars in the country.
According to OLX, India's largest online marketplace for pre-owned cars, sales are projected to grow by at least 10 per cent in 2019 at 4.4 million units even as sales of new cars is expected to decline by 6 per cent this calendar year. The trend is likely to only accentuate in future. Until 2023, pre-owned car sales are expected to grow at an average 10.6 per cent every year reaching a level of 6.6 million units. At the same time, sales of new cars are expected to be much slower at just over 4 per cent. Meanwhile, the industry volumes would only be 4 million by 2023. OLX further says pre-owned segment is constrained on the supply side, which throttles the rate of growth of the industry.
"Used car buying has not really diminished which is not very surprising to us in India because we are running this business in multiple countries. We have seen that wherever there is stress in the economy, the used ecosystem continues to sky rocket," says Sunny Kataria, Vice President, OLX Auto. "The growth would have been even stronger had there been a bigger inventory of cars. On the demand side, the numbers are far higher. For every new car that is listed on our website, we get more than 20 unique responses. That too, within a short period of time and not through the life of the asset on our platform. It is a supply constraint market."
The size of the pre-owned automobile industry is currently 1.3 times the size of the new car market and is expected to touch $25 billion by 2023. In the short-term, the growth is ironically, led by the slowdown in the overall economy that has meant stagnant salaries for the working population leading to a level of austerity in decision-making of consumers at large.
"A lot of people try to save some money when times are tough. They start looking for deals and options. People who would have otherwise never even thought of looking at a used car start considering it," he adds. "It helps them to save more money. Today there are cars available that are less than two-three years old that have done less than 20,000-30,000 kilometers on the road that still have the warranty of the manufacturer and hence they are fuss free and an easy transaction for the consumers."
Another big enabler is the change in demography of India. The strong growth is spurred by millennials, who are digitally savvy, seek choices, maximize value and are conscious of their impact on the environment. Millennials - those between 22 and 37 years of age - place emphasis on the resale value alongside the technology and safety features in the car, over other considerations such as size and brand.
"We have 440 million millennials comprising 30 per cent of the overall population and 50 per cent of the working population. These people are tech-friendly and value conscious and hence looking for deals. They play a very influential role. They have different priorities in life. A large part of the growth in used car sales is being driven by millennials in the used eco system," Kataria says.
The demand for used cars is segment agnostic. From entry level hatchbacks, to premium compact cars, sedans and SUVs, there are takers for every shape. The strong traction for used cars also debunks the theory that consumers are shying away from owning cars themselves and opting for shared mobility - OLA and Uber, for commuting.
"There is a demand for a car at all levels. Even a 7-8 year old Alto that is going for Rs 70,000-80,000 is in demand," Kataria says. "Car at the end of the day is a great asset to have. It is not a product in India to get to merely from point A to point B. It is a statement of aspiration that you have arrived in life at whatever level. India's personal mobility ratio at about 28 per 1000 is way below the international average and. In this scenario, the penetration of Ola or Uber is hardly anything."
"Sedans and hatchbacks have a huge inventory as far as pre-owned cars are concerned since they constituted the bulk of the new car sales until few years ago. SUVs as a trend are growing at a rapid pace. The average value of any used car in India today is around Rs 4.5 lakh while for an SUV it is Rs 8.5-9 lakh. At that sticker price, a growth of nearly 80 per cent speaks volumes for the kind of interest there is for that segment."
The slump in new car sales right now (PV sales have declined for ten straight month upto August 2019 and in 12 of the last 13 months) indicates the inventory level for pre-owned cars may diminish in the next few years. This may result in a slump in sales in future in an already supply constrain industry. Further, in times of an economic churn the propensity for consumers is to hold on to their vehicles longer, which may lead to a decline in the number of sellers in the market.
"There will be a lag effect if new car sales continue to decline for a longish period of time. It is a supply-constrained market. We were only selling 1.5 million cars until about five-six years ago annually. So, those are the cars that are coming into the pre-owned car market today."