Will the Used Car Market Bloom Post COVID-19 in India?

12 November
Will the Used Car Market Bloom Post COVID-19 in India?

COVID-19 or coronavirus continues ravaging the world, India included, affecting every industry in its wake. The auto industry is no exception, feeling the virus’ repercussions everywhere. However, a big question has also emerged regarding the used cars market – will India see a boost in pre-owned car purchases post COVID-19?

Before we look deeper at the market in question, the term “used” or “pre-owned” car needs to be examined more closely.

 

Examining the Phrase “Used Cars”

 

The term pre-owned typically refers to certified pre-owned (CPO) vehicles. This refers to a car that has undergone total servicing and is almost “like new” when re-entering the market. While this may cost more than just any pre-owned car, certified used cars usually come with additional warranties and roadside assistance, making them ideal for buyers who do not want to spend on a new car.

The various benefits of CPO vehicles include:

·        The car is typically between 2-8 years old

·        It has age and mileage limits thereby creating the “like-new” condition

·        The car is always tested and determined to be in good working conditions, having passed the necessary safety inspections

·        CPO vehicles are sold through, trustworthy, reliable licensed car dealers

·        Certification is only awarded after a thorough inspection according to the manufacturer’s standards

·        In some cases, the manufacturer-backed warranty extends the existing new-car coverage

·        Buyers can save up to 25% when they choose a 2-3-year-old CPO with almost the same functionality as a brand new car

·        A lot of services distinguish between CPO and used cars based on lease options – you can get a good quality CPO car at a low monthly rate 

·        CPO standards require a complete vehicle history report with a checklist about the manufacturer’s standards

·        The automaker determines the coverage so you can find something around 6 years/60,000 miles of coverage from the original sell date

·        CPO programmes are generally very detailed, and you should always check if the programme divides your warranty into "powertrain" and "limited" options

·        A CPO in India is like getting an “in-between” vehicle or a “new used car” – embrace it and enjoy the comfort

With some thorough research, you can choose the right CPO on the market in India. During COVID-19, owning a car has become more important than ever before. More people are purchasing CPO cars than ever before as a result of the global pandemic. Using public transport is less of an option since it is deemed unsafe. 

 

The Growing Used Cars Market in India

 

While this segment had already been growing steadily at a 15% rate pre-COVID, the pandemic is set to accelerate the growth further in the market. The CPO market in India was valued at USD 24.24B in 2019 and is set to continue at 15.12% over 2020-25. While the unorganised sector continues holding 82% of the market share, many organised players, including luxury brands like Mercedes-Benz, BMW, and Audi, are also investing in this market. Two of the biggest brands in this segment remain Maruti True Value and Mahindra First Choice Wheels Ltd. In FY2019-20, they sold 4.19 lakh and 2.5 lakh units, respectively.

According to Ashutosh Pandey, the CEO and MD of Mahindra First Choice Wheels Ltd., cars priced between Rs. 3-6 lakhs made up 50% of the CPO car sales, pre-COVID. He predicts that this trend will continue, saying, “This would still be the most preferred price point because there seems to be down-trading to the extent of 10-30 percent; so even customer who were in higher range earlier would now trade in this segment.”

Meanwhile, the company has reported FY2020 figures of 42 lakh units being sold in India, an increase of 5% from FY2019 (40 lakh cars). The CPO market itself outdoes the new cars market by 1.2-1.4 times. Maruti True Value predicts that these numbers will grow further to 1.5-1.7 times during and after COVID-19. This especially owes to the reduction of GST from 28% to 12-18% in 2018 as well as the consistently increasing prices of new cars. Therefore, people turn more towards used cars as a solution to their transportation needs.

In the same vein, Jatin Ahuja, the founder of Big Boy Toyz (BBT), says, "Research has shown that consumers who were, in the beginning of the year, willing to purchase new cars, are gradually opting for pre-owned vehicles due to budget cuts and also because pre-owned cars are valued for money.” As the founder of a premium luxury used car retailer, Ahuja is well-placed to make such comments and remains backed by other CPO car retailers like Niraj Singh, the CEO and co-founder of Spinny, who says, “The price segment below Rs. 4 lakh for premium hatchbacks and compact sedans is the most popular segment in the used car industry in India. It is likely to remain the same post the lockdown as people would be more looking to spend on cars as a need-based purchase.”

 

The Rise of Need-Based Buying of Used Cars

 

India’s economic stability was on shaky ground before the COVID-19 and industries all over the country coming to a standstill did not help accelerate growth. There is an apparent correlation between demand and consumer sentiment. The uncertainty surrounding the Indian economy led to unfavourable consumer sentiment was not supported by the economic shutdown. However, the sudden potential for an individual to be infected anywhere created the immediate need for cars.

Before COVID, buying a car was a significant financial decision. It depended heavily on positive sentiments and moods. It was a big-ticket item that needed positive sentiment to sell, as a spokesperson for Maruti True Value shares. COVID created the space for such a sentiment toward car purchase to flourish due to the sudden economic crisis in the country. With businesses across industries being forced to trim expenses and sustainably restructure and reallocate resources, unemployment became one of the country’s (and the world’s) biggest worries, second only to COVID-19 (Ipsos, 2020).

Such need-based buying ties into the statement as mentioned above by Singh, where he reveals hatchbacks and commonly used cars are in higher demand than luxury vehicles. While analysts raised red flags globally, saying that cars themselves would not be bought, the current trends show otherwise. Harshal Desai confirmed this at an All India Car Dealers Association webinar, where he said that post-lockdown CPO vehicles would be in demand – particularly during the festival seasons in India.

 

The BS6 Norms and the Industry

 

There continues to be speculation about the new BS6 norms and the impact of the shift from BS4 to BS6 norms on the CPO industry. These new norms were placed to monitor and control vehicular pollution. The norms related to engine and fuel specifications, drastically cutting down emissions and forcing cars to follow European standards. 

However, European standards cannot be cut-and-pasted onto the Indian auto industry. Instead, they must be altered to fit the Indian population size and driving style. E.g. Indians drive slower cars which means that engine specifications need to take speed into account. This requires a dramatic improvement in technology starting in April 2020. 

These norms have caused panic amid BS4 car owners. But, even more, it has caused panic among potential buyers. Luckily, the transition period from BS4 to BS6 is set to be until 2035. This means that while manufacturers cannot register any new BS4-compliant vehicles on the market, old BS4 cars can be sold. 

Since people are vying for cars adhering to the new norms, this also means that the older models will sell at a much cheaper price. Ever since the Supreme Court’s announcement about these new emission standards, “various companies like Mercedes, BMW, Audi, Maruti and many more are selling out their BS4 stock at a much lower cost, incurring huge losses in the procedure” according to BBT’s Ahuja. This indicates that while the industry continues growing in terms of units sold, they are being sold at a loss, impeding industry growth in the process. 

However, on the flip-side, Mark Sanyal from Spinny notes that this is an opportunity for BS4 car buyers and sellers. Since units are selling at lower rates, buyers will get newer cars at a good value for their money. Meanwhile, the rates are not low enough for sellers to substantially lose out from selling their BS4 cars. Therefore, he notes this transition phase as the possibly ideal time of growth for the CPO cars industry, as echoed by people before him.

 

Other Expected Changes in the Auto Industry Post-COVID

 

While the CPO sector is one (major) sector of the auto industry, there are several predicted changes for the industry as a whole after the pandemic. These include:

1.    A re-examination of the Auto Mission Plan 2030, i.e. the blueprints and timelines so that goals can be revised and critical parameters can be appropriately prioritised. This way, sales, vehicle penetration, revenues, employment, and the industry's overall contribution to the GDP also go up.

2.    Cleaner, more sanitary, and more reliable public transport that has in-vehicle hygiene aids, health emergency aids, and cleaner bus stops, bus depots etc. While this might increase travel costs, the safety will be worth it. 

3.    More low or no-contact technology with robotics, allowing for spare people and a redesigned shop floor. Including AR and VR could also make physical showrooms obsolete. 

4.    Pause on electric vehicle manufacturing. The money will instead be redirected towards rebuilding the economy. 

5.    Placing personal mobility in focus by emphasising the importance of an occasional (safe) drive out of the house. 

6.    The automakers who survived the pandemic managed this on brand value and customer loyalty. The brand will emerge as more important than sales, and more effective brand management will be necessary, making brands relevant to modern sensibilities.

7.    The end of the industry's over-dependence on China. Instead, we will turn inward for domestic talent.

8.    The industry needs to improve health, hygiene, and operating conditions, so workers operate the machinery in the factories.

9.    The industry will depend on the unity between key players and the government to put together a task force and have a contingency plan should such economic emergencies happen in the future. Relief, interventions, and remedies are the need of the hour. 

10.                    The necessary unity between large stakeholders is missing, allowing plans to be high-jacked and hindered. Therefore, all automakers need to come together regardless of the practices they adhere to. By creating a common platform for bodies like SIAM, SMEM, FADA, ACMA, ATMA, etc. to come together, a confederation can be formed that safeguards the industry.

11.                    Using enhanced AI and ML will no longer be optional, and the auto industry will play digital catch-up. Drones will also connect the various points in the supply chain.

12.                    While the government should work in collaboration with industries to keep the economy afloat, that has not been the case this pandemic. This creates a vacuum for high-stake players to fill so that the industry survives such economically tumultuous times. 

13.                    With rising unemployment during the pandemic, there is severe labour unrest. Simultaneously, the advanced tech used in the industry requires different kinds of skill-training with surplus human resources in new modes of employment that require low-contact operations. 

This comprehensive list continues to grow as the pandemic persists. However, suffice to say that through these measures, the auto industry and the CPO industry will be more prepared for a crisis of this magnitude in the future. 

 

Conclusion

 

In answer to the original question about the bloom of the CPO industry, the answer is yes. By all accounts, this industry is set to grow manifold in the wake of COVID and will continue blooming through the ever-changing emission standards. 

At Car N Drive, we help you find the ideal CPO vehicle for your needs. As an authorised, reliable platform, we ensure that the cars we host meet the necessary safety standards so that you get the car of your dreams at the best price possible!

 

 

 

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