There has been a great deal of noise about some of the leading players of Indian industry entering the retail market. What seems to have gone relatively unnoticed is the entry of the top names of the automobile sector into the second hand car market. Starting from scratch only a few years ago, the big boys have already cornered 22 per cent of this Rs 10,000 crore market, which was earlier completely unorganised.
Maruti sold 84,500 pre-owned cars in the financial year 2006-07, earning revenues of Rs. 1,483 crore. The company’s pre-owned car business has been doubling every year for the past three years. Maruti entered the use car business in 2000 as a part of its strategy to be the 'end-to-end' player in the car industry.
Arch rival Hyundai Motor India was a relative latecomer, entering the business only in April 2006. It currently has 50 ‘Hyundai Advantage’ outlets, where pre-owned cars can be exchanged. “Dealers have been given a target. Nearly 15 per cent of the cars sold by the dealer should be through exchange of used cars,” said a company official.
General Motors India, subsidiary of the US automobile giant, sells around 4,500-5,000 used cars annually through its dealers. “ The sale of pre-owned cars is a dealer driven activity and helps in retaining customers within the GM family," GMI vice-president P. Balendran stated.
The pre-owned car market is not limited to locally manufactured cars. Sensing an opportunity, German luxury car manufacturer Porsche has also entered used car market and has sold 40 cars in last 18 months. Bentley has also drawn up plans to enter the pre-owned market.
“The used cars market is estimated to be of the same size as that of the new cars market. Nearly 1 million cars change hands annually,” says a study conducted by the Society of Indian Automobile Manufacturers (SIAM).
Still, most of this market remains unorganised. It is also largely unregulated, allowing the unsucruplous a field day. Industry estimates maintain that nearly 10 million pre-owned cars are presently up for sale across the country.
“Sixty per cent of the cars are sold through word of mouth publicity,” says a Maruti executive supervising the company’s True Value brand of used car market.
Nearly 18-20 per cent of the car sales are presently being done through the brokers. “The used car market faces problems of information asymmetry, lack of price index and transfer hassles,” says a car industry watcher, who did not wish to be identified.
A more evolved used car market with established used car market with established trade practices would encourage car owners to trade in and upgrade their cars more frequently. In such a scenario, old cars become safer and meet emission as well other regulatory requirement. The car industry has been urging the government to lay down a policy proposing scrapping cars after a stipulated time.
“There is a lack of homogeneity in the market with diversity in taxation and emission norms. Introduction of goods and service tax in 2010 could help the used car industry,” says SIAM director-general Dilip Chenoy.
Inter-State transfer of cars is a cumbersome and expensive proposition. States charge VAT on used cars ranging from 4-12 per cent.
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