Wheel is among the most significant human inventions. Many centuries later, cars, as we know them today, came into existence. Irrespective of the country or social status, cars have always been an aspirational product. After owning a house, people set their sights on a car. For some, it is the other way round. The ease of movement in a car, irrespective of weather conditions, is second to none. As more and more companies entered the automobile industry, competition and innovation brought the joy of driving to everyone. Financing and multiple payment options democratized vehicle ownership.
The ease of buying a car resulted in millions of cars plying on roads. Within no time, maintaining a car was no longer an urban trend. People in the big cities change cars more often as compared to their counterparts in the smaller towns or villages. Have you ever wondered why the used car market has become larger and more organized in recent times? And, who buys used cars? The answer to these and many more such questions can be found in the following paragraphs.
Part-time advocates for a greener planet lecture people from emerging markets about the damage caused by vehicular emission. It will take at least another decade before non-fossil fuel cars are with in reach of the masses. Until then, we have to devise other ways to check pollution and facilitate unrestricted mobility to everyone who wishes to climb up the social ladder.
Used Car Market: Then and Now
Majority of the used car market in India is still in the unorganized sector. Slowly, but steadily the used car market is witnessing consolidation. New-age companies are trying to cater to a consumer who is constantly glued to their internet-enabled devices. As per some estimates the size of the Indian used car market in 2020 was $27 billion, and it is expected to double in the coming five years. The projections for growth in the breadth and depth of the Indian automobile market is attracting financial and human capital.
Some people keep their cars in better shape as compared to others. A car enthusiast doesn’t delay essential repairs and maintenance. Therefore, buying a car from a known person is still in practice. Constant increase in the price of new cars, and their long waiting period due to microchip shortage, has contributed to the surge of consumer interest in the used car market.
Primarily, consumers sell their cars for two reasons: the first reason is when they are in the market for a new car and secondly due to some distress. Consumers who are in the market for a new car have traditionally sold their old cars to the dealer from whom they purchase the new car. The simplicity of this transaction results in straightforward reduction in the on-road price of the new vehicle. Depending upon the multi-point quality check of the older vehicle, the car dealer may choose to refurbish it or sell it bit by bit.
Used Car Age Sweet Spot
Purchasing a used car instead of buying a new one has obvious advantages. The most important difference is, of course, the lower price point when you buy used. Vehicles are assets that suffer from depreciation. While this can be a pain for people who like to buy the latest models, it can be a blessing for others happy to buy pre-owned vehicles. Buying a used car that’s even just a few years old can mean significant savings.
We must, however, consider that older vehicles may require more maintenance and repair. Wear and tear inevitably take its toll. When shopping, is there a best age for a used car? New cars depreciate much faster than used cars. When you drive a new car off the lot it loses 9-11% of its value immediately. Within twelve months, the average car will have lost 20% of its value. After that point, a car will lose about 15-25% of its current value every year for five years. Subsequently, depreciation still happens, but at a slower rate.
Modern cars are, on the whole, extremely reliable even as they age. The average five-year-old car costs about ₹15,000-20,000 in repairs, while a 10-years-old car has an average annual repair cost of just under ₹35,000-40,000 a year. A five-year-old car may only suffer a major problem every three years while a 10-year-old car is likely to encounter a problem every 18 to 20 months.
The best age for purchase of a used car is highly subjective and comes down to your priorities. Purchasing a used car that is just two to three years old is a massive saving on new car prices and you get a virtually new car. But if you are willing to potentially sacrifice on styling and features, a five-year-old vehicle offers even more dramatic savings and is unlikely to cost much more in annual maintenance. Questions like how much mileage has the car done and when was the last time tyres and battery were replaced, should be asked at the first instance.
OLX Autos-CRISIL Study 2021
“The pre-owned market has been outpacing the new car market, and the industry is expected to clock a healthy growth rate of 15 per cent in Financial Year 2021-22,” OLX Autos said in a statement.
Citing the findings, OLX Autos India CEO Amit Kumar said, “The preference for personal mobility has propelled a huge swing in favour of used-car sales that are expected to reach a phenomenal ‘1.5x’ more than that of new car sales over the next five years.” He further said, “The digital switch has been highly transformative, bringing in its wake increased transparency, trust and a huge choice of new generation vehicles to the consumer. The unique customer insights from the study will introduce further innovation in the sector.”
The study also found that there is a rise in preference for bigger cars with its share in the pre-owned car market increasing to 20 per cent in Financial Year 2020-21, up from 18 per cent in Financial Year 2017-18. Vehicles aged 5-7 years dominated the market with 31 per cent share, followed by vehicles of 8-10 years with a 29 per cent share.
Key to Growth
The key to growth for used car market in India will be transparency, greater professionalism and symmetry of information. Consumers continue to apply the same approach to research and collection of information in their search for used vehicles as they do in the new car buying process.
Another important success strategy in the used car business will be the development of trust-inducing initiatives such as certified used vehicle programs. Most car manufacturers in India have floated used car ventures. Franchised car dealers are in a strong position in the used car market. A balanced relationship will presume that buyers and sellers possess the same information by which to determine a product’s quality.