Auto Second Car
Uploaded by
krantiakTopics covered
- market dynamics,
- online portals,
- used car sales,
- market potential,
- urbanization,
- broker commissions,
- market share,
- CAGR,
- low cost cars,
- automobile industry
Auto Second Car
Uploaded by
krantiakTopics covered
- market dynamics,
- online portals,
- used car sales,
- market potential,
- urbanization,
- broker commissions,
- market share,
- CAGR,
- low cost cars,
- automobile industry
Common questions
Powered by AIThe second hand car market encounters challenges from the new car market due to the introduction of low-cost models, which attract potential pre-owned car buyers to opt for new vehicles instead. Such launches, like the Tata Nano, decrease the resale value of second hand cars, creating competitive pressure . However, the market also benefits as new launches in higher-end segments prompt current owners to sell their existing vehicles, thus increasing supply and activity in the second hand market. The desire for upgrades among owners also facilitates growth in the pre-owned segment as they utilize their vehicles as trade-ins .
In the unorganised second hand car market, local brokers are central to the value chain structure. They facilitate about half of the used car transactions, acting as intermediaries between buyers and sellers. Functions performed by brokers include arranging the sale, negotiating prices, assisting in paperwork such as insurance and registration transfer, and sometimes offering refurbishment services . Brokers typically close 8-10 car deals monthly, charging a commission ranging from 2-3% of the deal value from both parties. Their role is crucial in ensuring smooth transactions despite the market's informal nature .
The second hand car market in India has experienced significant growth over the past decade. Initially, owning a car was considered a luxury affordable only to the rich, making second hand cars the primary option for aspirational middle-class buyers. Over the last ten years, rising income levels, easy availability of financing, and competitive model offerings have led to increased affordability and demand for both new and second hand cars. This shift has reduced the holding period for vehicles, causing an increase in the second hand car market from 0.3 million units in FY2000 to approximately 1.8 million units in FY2010, with a CAGR of about 20% . Additional factors like urbanization and the desire to upgrade from two-wheelers to cars have also spurred this growth .
Financing in the second hand car market has evolved with several major banks and financial institutions, such as Kotak Mahindra Prime, HDFC Bank, ICICI Bank, State Bank of India, and Punjab National Bank, offering loans for used car purchases. The financing terms include a maximum tenure of 60 months and coverage of 70-85% of the car's value, depending on the buyer's profile and car usage. However, these institutions primarily focus on financing cars purchased through the organised segment, indicating a limitation towards the largely dominant unorganised market, where most transactions occur without structured financial backing . The interest rates for used car financing are also notably higher, posing an additional cost barrier .
The unorganised segment impacts consumer trust significantly as it involves personal dealings through local brokers, which might lack transparency in ownership genuineness and quality assurance of spare parts. Buyers often have to rely on known sellers or intermediaries, making trust a substantial challenge . Organised players address these issues by offering structured and transparent processes, ensuring proper verification of car ownership, and refurbishing cars before sale, thus enhancing trust and reliability . They provide value-added services such as transfer of registration and financing options that further boost buyer confidence in pre-owned car purchases .
Local brokers are a key component in the unorganised second hand car market, dominating around 88-90% of sales. They play a critical role due to the high level of trust required in such transactions, including verifying the genuineness of ownership, quality of spare parts, and transparency in any accident-related charges. Many buyers prefer dealing with known sellers facilitated by local brokers who provide personalized contact . Brokers also assist in closing deals by offering services such as insurance and registration transfers. Their familiarity with both buyers and sellers and involvement in additional services like car refurbishment enhances their indispensability in this segment .
The second hand car market in India is projected to grow at a CAGR of 18-20% until FY15, increasing from 1.8 million units in FY10 to approximately 3.8 million units by FY15. This growth is expected to be driven by rising income levels, a substantial base of two-wheeler owners upgrading to cars, and an improving financing scenario that makes car purchases more accessible . Moreover, the entry and expansion of organised players in the market are anticipated to increase the organised sector's share to 30-35%, further contributing to the market's growth .
New car model launches can affect the resale values of second hand cars by shifting buyer preferences, particularly when low-cost and entry-level models are introduced, thereby offering an affordable alternative to used cars. This shift can lead to lower resale prices as demand moves towards newer models. Conversely, launches in higher-end segments prompt existing owners to sell their used cars to upgrade, thus increasing available inventory for the second hand market and influencing buyer preferences towards higher value pre-owned vehicles. Such dynamics create a complex interplay, impacting both demand and supply elements within the second hand car market .
Organised players have gained momentum in the Indian second hand car market due to the significant growth potential recognized by major OEMs, which led them to enter this market. Companies like Maruti Suzuki (True Value), Mahindra (First Choice), Ford (Assured), and Hyundai (Advantage) have established strong presence in the organised sector. Initially, they used second hand car sales to promote their new vehicles through exchange offers. However, as buyer awareness of the benefits and reliability of organised players increased, OEMs started considering used car sales as a high-potential business venture. The improved buyer response and the structured services offered by these organised players have further accelerated their growth .
Online portals influence the second hand car market by providing vast coverage and accessibility, attracting a large number of buyers and sellers to register their vehicles. However, the platforms face limitations due to a low conversion ratio, mainly attributed to the lack of trust between anonymous buyers and sellers, which is critical in used car transactions. This trust deficit hinders successful deal completions through these platforms, as buyers often prefer personal contacts or trusted local intermediaries to ensure quality and ownership validity in the unorganised segment .
