The economy is in a slowdown mode and car sales are already bearish, but pre owned car segment continues to grow in double digits and is likely to emerge as a bigger market than new cars by the end of this year.
Industry majors like Maruti, Tata, Mahindra and Honda, all seem to be slipping deeper into a recessionary phase with every passing month. In the first five months of the current fiscal so far, Maruti has grown by only 4.3 per cent while Tata's sales have declined by 4.9 per cent.
But the lacklustre performance in new car sales, is not reflected in used cars where estimates suggest sales have grown by over 20 per cent in the same period. Infact organised players like Maruti True Value and Mahindra First Choice are on an even higher growth trajectory.
Maruti sold 1.01 lakh used cars in the last fiscal but if the sales in the first four months are anything to go by, it will far exceed that number this year.
“In this fiscal so far, we have sold almost 44,000 used cars at a growth of 31 per cent,” said Ravi Bhatia, General Manager, Maruti Suzuki India Ltd. The growth is despite high inflation and interest rates and first time buyers account for a sizeable number. In contrast, Maruti's new car sales grew by only 8.9 per cent in this fiscal.
According to Maruti, 78 per cent of all the used car buyers are the first time buyers and the company expects further acceleration in the growth till 2010-11. “Used car market will be atleast 1.15 times the new car market. If we sell 2 million new cars in 2010, then used car sales would be 2.6 million,” Bhatia said.
Mahindra and Mahindra and Honda have similar stories to tell. “Used car sales are definitely growing at a faster rate. It is natural because whenever inflation, oil prices and EMIs go up, there is a shift from new cars to used cars,”said Vinay Sanghi, Chief Executive Officer of Mahindra First Choice. Mahindra expects a 100 per cent jump in sales this year though Sanghi refused to divulge absolute numbers.
Honda Siel Cars India which runs its own used car network Auto Terrace has also witnessed similar trends. Honda's new car sales have grown up marginally by 0.2 per cent between April-July this year but Auto Terrace has a different story to tell.
“We do not have a huge network and deal only in Honda cars but our pre owned car sales have grown by 30 per cent in this year so far,” said Honda Siel Vice President (marketing and sales) Janeswar Sen.
The reasons for this surge are numerous. While high interest rates is one prime factor another is rising cost of new cars due to high commodity prices. Further a bulging used car market also signals growing maturity in the sector.
“Used car market is becoming a very sizeable market competing with cars as well as two wheeler markets. In the US, a new car buyer would have owned three cars before purchasing one,” said Dr Subir Gokarn, executive director and chief economist, Crisil. “That is a pattern we may be witnessing.”