New Delhi: The prices of some used small cars could fall by up to 10% with the successful introduction of the Tata Nano, the world’s cheapest car, predict sellers of such second-hand vehicles. These sellers also claim the drop in prices is likely to boost sales.
“Assuming that the Tata Nano is introduced and it is successful...we don’t have much clarity on the price (of Nano) ...Prices (of used cars) could go down by 7-10%,” said Vinay Sanghi, chief executive of Mahindra FirstChoice, the used car business of Mahindra and Mahindra Ltd, India’s largest utility vehicle maker.
Mahindra FirstChoice is also the largest used car dealership in the country.
Sales of used cars in India are estimated at 1.6 million units in 2007-08, about 100,000 units more than all new cars sold. There are no reliable figures for this category and the numbers are a consensus estimate from large branded sellers, dealers and financiers.
Some 80-90% of the transactions in the second-hand car segment still happen in the unorganized sector, facilitated by an estimated 2,000 brokers.
The Tata Nano, with a starting price of Rs1 lakh, is scheduled to roll out in October, according to Tata Motors Ltd. With insurance, transportation charges and local taxes, prices could go up to about Rs1.2-1.3 lakh. This is roughly equivalent to the price of a three-year old Alto, the country’s largest selling small car, said a dealer who didn’t want to be named.
The general consensus is that the used car segment may reach 2.7 million units by 2012-13, or a fifth more than new car sales, as many of India’s 50 million two-wheeler owners could shift to affordable four-wheelers. In markets such as the US and France, the used car segment is as much as 2.5 times larger than the new car one, said a recent report by consultancy firm Capgemini.
“Clearly, there is a case for growth in used-car business,” said Ravi Bhatia, who heads the TrueValue used car division of Maruti Suzuki India Ltd, the country’s largest carmaker. “There will be more demand for used small cars, given the rise in interest rates and oil prices, as these are more fuel-efficient” and have lower monthly loan repayment amounts compared with new small cars, due to their lower value, he added.
However, at 17%, lending rates for used cars are 250 -300 basis points more than those for new cars. A basis point is one-hundredth of a percentage point.
Both Maruti’s Bhatia and Mahindra’s Sanghi said financiers are willing to fund the purchases of these vehicles, despite there being a credit squeeze in the market, which has dented the sales of two-wheelers.
The Tata Nano’s loans are expected to be priced at par with used cars, say car finance firms.