Mumbai: When Indian insurance executive K. Shankar shopped for a car, he was pleasantly surprised to discover he could buy a three-year-old sports utility vehicle (SUV) in near-mint condition for just a bit more than a new hatchback.
“This SUV is ideal for me...and if I can get it for the price of a much smaller new car, then why not?” said Shankar.
Used car purchases are soaring in India, the world’s second most populous country, as a host of global and local auto firms offer attractive trade-in deals to build customer loyalty and boost new car sales.
Many of these used vehicles are getting snapped up by people who have never owned cars before or families adding second, or even third, vehicles to their fleets.
With at least one million cars being added to India’s roads every year, experts worry the country’s creaky infrastructure won’t keep up with the volume of traffic, causing unbearable congestion and more traffic accidents in a country that already has one of the world’s worst road death tolls. Around 100,000 people were killed in road accidents in 2007 alone.
“Growth in vehicle ownership has reduced rush hour speeds to 5-10km an hour in the central areas of major cities,” the World Bank said in a recent report on India.
The number of vehicles on Indian roads has grown at an average pace of 10.2% annually over the last five years, it said, adding that 50% of roads were in a state of disrepair and only 30% of highways had two lanes or more.
Until recently, the used car market in India was dominated by neighbourhood dealers and roadside garage mechanics who controlled nearly 90% of the market, say industry experts.
But several global car makers such as Hyundai Motor Co., Ford Motor Co. and General Motors Corp. have entered the market with certified pre-owned car programmes, causing used car sales to soar.
India’s largest vehicle maker, Tata Motors Ltd, also entered the market earlier this year.
Local firms Maruti Suzuki India Ltd and top utility vehicles maker Mahindra and Mahindra Ltd’s were the first to spot an opportunity when they launched their certified pre-owned cars programmes at least five years ago.
The used car programmes allow customers to get new cars in exchange for their older ones at substantial discounts.
These used cars are then refurbished and sold with warranties.
For auto firms, the exchange programmes are a way of building brand loyalty. For new car owners, these programmes are an opportunity to buy bigger cars at entry-level prices.
“We will be able to ensure customer loyalty and it will also reflect in the sale of new cars,” said General Motors India’s vice-president, P. Balendran.
Most used car buyers are first-time owners or those buying additional cars for their spouses or children, said Hormazd Sorabjee, editor of Autocar India magazine.
According to industry estimates, in 2008-09, new passenger vehicle sales were about 1.5 million units while sales of used cars were about one million.
“If you look at the mature markets such as the US and Europe, used car sales are in multiples of new car sales...and that is the sort of trend we are seeing replicated in India,” said Jayesh Jagasia, founder of VeriCAR, a company that inspects used cars for customers.
As business grows, an industry for used cars has also sprung up such as websites advising customers on good car deals and rating used vehicles.
The financial crisis, in which India’s growth has slowed to 6.7% in the fiscal ended March, from 9% a year earlier, has also been behind the growth in used car sales.
“Interest in used cars has increased over the last one year or more because of uncertainty prevalent in the market and unavailability of loans,” said Umang Kumar, co-founder of Gaadi.com, a search website for used and new cars.