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Fewer buyers replacing their old cars

Fewer buyers replacing their old cars
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First Published: Mon, Sep 26 2011. 11 35 PM IST

By Uttam Sharma/Mint
By Uttam Sharma/Mint
Updated: Mon, Sep 26 2011. 11 35 PM IST
New Delhi: Car makers sold 1.5% fewer cars in the five months to 31 August compared with the same period last year, and behind this fall is an interesting detail: fewer people are replacing old cars or their buying second and third cars.
“Replacements are just not happening. Typically, it is said that people who have money do not hesitate to spend even during a slowdown,” said Shashank Srivastava, chief general manager, Maruti Suzuki India Ltd. “In the case of cars, we have noticed that while the number of first-time buyers has gone up significantly, people who already have a car and want to buy a second one or want to sell an old car to buy a new one are holding their decisions.”
By Uttam Sharma/Mint
The proportion of replacement or second and third car buyers to first car buyers is around 44:56, and the former reflects anything between a 10 percentage point and 14 percentage point fall from last year, say executives at car makers and analysts. The numbers suggest that a little over half the buyers of cars in India last year were actually replacing cars or buying another one to add to their stable. That is no longer the case.
Behind the statistic are all the reasons everyone talks about when discussing the sales of cars this year: higher commodity prices (that are now softening), interest rates, high fuel prices, and a generally gloomy outlook on the economy.
Also See | Sales Track (PDF)
What the number shows is that these factors seem to affect those replacing a car or buying a second or third one far more than customers buying their first car.
This year, according to Maruti’s Srivastava, the proportion of customers buying a car to replace another is 24% (of the total number of customers), and that of those buying a second or third car is 30%. Maruti Suzuki is India’s largest car manufacturer and sells every second car sold in the market.
Hyundai Motor India Ltd, too, admits that there has been an increase in the number of first-time buyers to around 55% in its case. A Hyundai spokesperson attributed this to the continuing phenomenon of people moving to suburbs and satellite towns.
Tata Motors Ltd’s Nano, too, which has seen fluctuating sales seen its launch in 2009, has seen the contribution of first-time buyers increasing from 20% from the time of launch to 55% in the last quarter. A Tata Motors spokesperson said that with the company trying to penetrate deeper in the market, the share of first-time buyers will go up further, perhaps an indication of the Nano reaching out to the people who are actually meant to drive it.
While that can explain the sales pattern of specific models, 2011 is the first time in five years that sales to first-time buyers have seen a sudden spurt.
“It is quite possible that the growing percentage of first-time buyers may have increased. According to our knowledge, almost 56% of the people (buying cars) are first-time buyers and 44% are second timers,” said Pradeep Saxena, executive director, TNS Automotive, a market research firm. Someone who already has a car isn’t in “dire need of one”, he added, and “will take into consideration a lot of factors such as the share market crashing, inflation being on a high...”
Saxena added that in 2006, too, there was a sudden increase in the proportion of first-time car buyers.
Since March 2010, India’s central bank has effected 12 interest rate increases, turning people off credit in a country where seven out of every 10 cars bought are financed.
“See, the Reserve Bank of India is trying to cut down the inflation expectation by increasing interest rates. So, I think everybody will cut down on their purchase decisions,” said Nikhil Deshpande, a research analyst with PINC Research. “ I think a second-car buyer will be normally a person who wants to graduate from a smaller car to a larger car. In this case, it doesn’t make sense for him to buy a car now as the cost of maintenance will be higher.”
The price of petrol has risen from Rs 51.56 per litre to Rs 66.84 in New Delhi in the last one year.
With the onset of the all-important festive season that usually sees an increase in sales, car makers are announcing attractive exchange offers and discounts to attract second-car buyers.
“The festive season has begun and we have announced exciting and relevant programmes for our prospects,” said Nigel Wark, executive director (marketing, sales and service) at Ford India. “These include exchange offers and loyalty programmes, which are quite popular with second-car buyers...”
amrit.r@livemint.com
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First Published: Mon, Sep 26 2011. 11 35 PM IST
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