Used Car Sales Boom Isn't Threatened By Waning Pandemic

Trains and buses to taxis are full again as the pandemic wanes but that hasn't cooled sales of pre-owned cars.

“The easing of Covid-related restrictions has had a strong positive impact on the demand for pre-owned cars,” Ashutosh Pandey, managing director and chief executive officer at the used car retailer Mahindra First Choice Wheels, told BQ Prime in an emailed response.

“While people have started using public transport and new car supply has eased, the demand for pre-owned cars has remained strong.”

User car demand spiked during the coronavirus pandemic as people preferred personal mobility. And also because fewer people replaced cars because of restrictions and a rise in prices after the shift to Bharat VI emission standards. The surge has sustained, mostly on demand from smaller cities.

According to Pandey, sales are likely to rise 10-12% to 44 lakh units in the current financial year, compared with 15% growth in the year ended March.

"We have witnessed 50%+ growth in our organic traffic and 75% growth in our store customer walk-ins to test drive and buy cars," Sharad Saxena, CEO of used car business at CarDekho group, said. "As a result, during this period, our sales have increased by over 50% (versus during Covid)."

While the supply in the first quarter rose 3% sequentially, the demand jumped 6%, according to data provided by CarWale.

When supply of old cars fell during the pandemic, the prices in the entry hatchback segment jumped around 10%. And while supply has improved, the prices have not come down.

According to Indian Blue Book, Mahindra First Choice’s proprietary pricing tool, prices of pre-owned cars have firmed up by 10-15% over the pre-pandemic levels.

But prices have eased from the peak when semiconductor shortages halted output of new cars.

CarDekho's Saxena said while there is a healthy supply of old cars in the entry-level segment now, the quality mix has become worse with low supply of high quality cars due to constraints in the new car market last year.

CarWale’s Chief Executive Officer Banwari Lal Sharma said the prices on the platform have fallen 2-4% on an average in recent months.

“Prices peaked 3-6 months ago due to limited availability of vehicles but that has gotten a little better,” Sharma said. “Around Diwali, the prices may come down a little more but not to the levels seen before the huge jump.”

The luxury vehicles have also turned pricier.

According to an OLX study of 50,000 pre-owned luxury cars listed on its platform from January to June, the average price of Mercedes Benz went up by 25%, Porsche saw a 13% rise and BMW spiked by 11% over a year earlier.

Demand for used cars is being driven by tier 1 and 2 cities.

“We see a unique situation where there is a lot of supply (50%+) for used vehicles in metros, but a significant part of the demand (75%+) actually comes from outside metros,” Mahindra First Choice’s Pandey said.

Demand improvement was more pronounced in South India followed by the west, while it had been relatively lower in the east even post lockdown, Amit Kumar, CEO of OLX Group India, said. Interestingly, the concept of shopping for used cars is now gaining momentum in tier 2 and 3 cities as well, he said.

While hatchbacks continue to dominate the used car market, there are signs of buyers shifting to sports utility vehicles as Indians increasingly prefer bigger vehicles.

Mahindra First Choice’s dealers have seen 20-40% increase in demand for SUVs. While the traditional SUVs like Scorpio, Bolero, Innova, and Ecosport are still dominant, demand for new-age compact SUVs and multi utility vehicles such as the Ertiga, Creta, Seltos, and Hector has jumped.

But the supply is yet to catch up in this segment. That's because most of the models in demand are only three to four years old, according to Sharma of CarWale. Once these products start hitting the used car market, the SUV share will rise, he said.

According to the OLX survey, demand for pre-owned luxury cars witnessed a sharp increase in the first half of 2022, with BMW leading the pack, followed by Mercedes Benz, Audi, Jaguar and Porsche.

The outlook is positive.

Mahindra First Choice, which claims to be the largest retailer of old cars in the country, saw its volumes and revenue double in FY22 and FY21. The company added 150 dealers last fiscal, taking the total count to nearly 1,200.

And given the way supply and demand factors are placed right now, the industry is likely to maintain growth.

“This is what the broad scenario is right now—just enough supply of used cars and demand remains good, which is a lucrative market from the perspective of a seller, with buyers also getting cars of their choice at slightly more reasonable prices than earlier,” Sharma said.

(Updates an earlier version with comments from OLX and CarDeKho)