India’s pre-owned car market is expected to narrow the gap in value terms with new cars over the next five years. This is on account of a changing mix increasingly skewed towards utility vehicles (UVs) that command better value, reveals a latest study by OLX Autos and CRISIL Research.
The value of the pre-owned car market is likely to touch Rs 4.3-4.5 trillion by 2026-27 (FY27), while that of new cars is expected to be worth Rs 6.6-6.8 trillion in the same period.
The gap was more pronounced at the end of 2021-22 (FY22). It was Rs 1.8 trillion for used cars and Rs 3.3 trillion for new ones, observes the study.
Over the next five years, while the compound annual growth rate in used cars in terms of unit sales is likely to be 15 per cent, it is estimated to be 20 per cent in value terms, OLX Group Chief Executive Officer Amit Kumar told Business Standard.
“This is because the mix of cars coming to the market is shifting in favour of UVs. Moreover, the prices of new cars are headed north,” said Kumar.
The share of UVs has gone up sharply in the used-car segment over the past five years – from 17 per cent in 2016-17 to 22 per cent in FY22 and expected to rise further to 32 per cent by FY27.
The growth in UVs has come at the expense of sedans and vans.
According to Kumar, while some of this has also come at the cost of small cars, the latter will remain a favourite of the value-conscious first-time buyers.
Small cars still account for a good 58 per cent in the overall pre-owned market (FY22) and will only see a marginal drop of around 200 basis points by FY27, he said.
Increasing finance penetration, renewed confidence among car buyers with regard to pre-owned vehicles, and a sharp surge in new car prices have been fuelling the growth of the pre-owned market.
A persistence in the trend will be guided by disposable incomes, affordability for discretionary spending on personal mobility, and easy financing options.
“The finance penetration has been going up in the segment. It’s currently 20-25 per cent, up from 18-20 per cent in the pre-pandemic period. This is likely to grow to 31-40 per cent by FY27,” said Kumar.
In the new car segment, the percentage of cars bought on credit is 70-80 per cent.
“If the financing for used cars doesn’t improve, growth is unlikely to happen. Finance is a major driver, given that 45-45 per cent are first-time buyers,” said Kumar.