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Business News/ Companies / Used car prices take off even as covid hits new purchases

Used car prices take off even as covid hits new purchases

Prices rise as supply of older vehicles shrinks due to shocks from the covid pandemic

The value of cars nearing 10 years was seen to drop sharply as various states institute policies to scrap older vehicles. htPremium
The value of cars nearing 10 years was seen to drop sharply as various states institute policies to scrap older vehicles. ht


With the covid-led demand surge in personal mobility, the pre-owned car market is not only outpacing new car sales, but used cars are also being sold at a premium of 7-10% over 2020, said industry experts.

Pre-owned cars are in short supply as consumers delay replacing or upgrading existing vehicles due to job and income losses, and high inflation shrinks purchasing power, they added.

“The average buying price of a used car has gone up by 7-8% in the last one year," said Shashank Srivastava, executive director, Maruti Suzuki. “Many customers, who were saving to buy new cars, or get them financed, find that prices have gone up by the time they come to the market to purchase. A used car may fit their budgets better."

Srivastava pointed out that the value of cars nearing 10 years was seen to drop sharply as various states institute policies to scrap older vehicles.

Customers are also preferring to hold their cars for a longer period of time, with the average period going up from eight years to over nine years in the last 12 months, he added. As a result, exchange penetration, or the number of customers replacing a used car for a new one as a percentage of total sales, has dropped from 28% pre-covid to 18% in 2020-21.

However, he said, replacement buying is picking up, and exchange penetration was at 19% in February.

True Value, the pre-owned car business of Maruti Suzuki, will end FY22 with nearly 15% higher sales compared to FY21. “We sold 270,000 used cars last year, and will cross 310,000 this year," he added.

Mahindra First Choice Wheels has also witnessed significant growth in sales in the current quarter. “We have been growing 100% year-on-year for the past few months. In Q4, the total number of cars sold will be equal to the overall volumes we sold in the full previous financial year," Ashutosh Pandey, chief executive and managing director, Mahindra First Choice Wheels, said.

“Used cars have always been a supply-constrained space, and the recent spurt in demand has only exacerbated this gap. This has led to an increase in the prices of used cars by 5-15%."

Tech-enabled platforms are, however, witnessing steady supply of pre-owned cars with the market consolidating for organized players. “We are not seeing supply pressure. In fact, we are seeing our numbers grow every month. We are getting steady supply because we are an end-to-end used car platform. Customers sell their existing cars on our platform, and then upgrade to a higher-value used car, instead of a new car," said Gajendra Jangid, co-founder of Cars24, an e-commerce marketplaces for used cars.

“For us, it is like icing on the cake, the cake being demand that we saw during covid-19 when people wanted to buy a car for personal use during the lockdowns," he added.

The trend is especially visible for those at the bottom of the pyramid, or those upgrading from a two-wheeler. “The top-selling models on OLX Auto are popular hatchbacks, such as Swift, Alto and i10. But, SUVs like XUV500, Innova and Scorpio are also becoming popular. Growth is driven by first-time buyers, accounting for 40% of consumers. Financing options will further drive adoption," Amit Kumar, chief executive, Olx Auto, said, adding that the average selling price of used cars was up by 17% year-on-year on its platform from 3.99 lakh in January 2021 to 4.84 lakh this January.

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Alisha Sachdev
Alisha Sachdev is an assistant editor with Mint based in Delhi. She reports on the auto and mobility sector, with a special focus on emerging clean mobility technologies. She also focusses on developing multimedia properties for Mint and currently hosts the 'In A Minute' series and the Mint Primer podcast. Previously, she has worked with CNBC-TV18 and NDTV.
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Updated: 30 Mar 2022, 01:22 AM IST
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