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“Used Car Market is performing better than New Car. Why?”

When a consumer market’s structure is organized, the buyers’ trust goes up and so is the sales. That’s how customers react to any of the markets in developing countries. India is no different. We have seen it in the communication industry or even with second-hand items market. You build the consumer confidence and you reap benefits out of it. For the longest time, the used car segment in India has been left untouched. Over the years, it was left to be dominated by the local dealers to enjoy the monopoly. They provided less information to the customers as well as fewer service in comparison to the new-age organized players. One of the reports from The Economic Times stated ‘Unlike the new car market, which has traversed some rough patches of late, India’s used car market has had a relatively stable growth. From 1.6 million units (worth Rs 38,500 crore) in 2011, it is today pegged at 3.3 million units (Rs 96,000 crore). According to Nagendra Palle, MD, Mahindra First Choice Wheels Ltd, the used car or pre-owned car market will continue to grow at a steady pace of 15% to touch Rs 2,50,000 crore or 6.6 million units by 2021.’ The dynamics have changed and will continue to change. Today’s customers are informed and never take decisions without market research. Thanks to the internet era.

There could be many possible reasons for the shift in the behaviour of the used car market leading to change in the consumers’ behaviour too. Let’s discuss a few of the important once:

#1 Decrease in the length of the Ownership

The wide range of cars launched every year has spoilt the car owners so much so that they want to upgrade their cars almost every 2-3 years. The ownership has shortened in the last decade from 7-9 years to 4-5 years and it is expected to decrease even further to 3.5 years by 2021. Thus, leaving the used car market with many newer and better-conditioned cars for the second time buyers. And the cost goes down tremendously as soon as the car leaves the showroom. Till now Maruti Suzuki has been one of the favorite brands in the used car segment. Small Cars have been the mainstay in the used cars market as they are readily available. Also, it’s interesting to know that diesel cars have seen an increase in sales too. Another potential reason could be the cars’ quality has been improved and thus, leading to extended reliability.

#2 Increase in the Consumer Confidence index

With the market getting organized and structured slowly, the confidence of consumers has gone up in buying used cars. For example, all second-hand cars are certified when they are bought from OLX Cash My Car. The car goes through an intensive process of testing before being purchased from the owner to decide the value. Therefore, when a buyer is purchasing a second-hand car from OLX Cash My Car knows that he is paying the right amount. The buyer is also confident of the purchase too.

#3 Easy to afford Luxury Cars

It’s a fact that not everyone can afford to own a luxury car in a market like India. But then who has stopped you from dreaming about it. Such dreams or aspirations of individuals are seeing the light of the day. Thanks to the increasing organized market. For instance, OLX Cash My Car offline stores are now located across 50 stores in all major cities like Delhi, Delhi-NCR, Mumbai, Thane, Hyderabad, Bangalore, Chennai, Pune etc which aims to increase to 120 outlets by 20121. BMW is at the top of the used car market. It surely defines the love for the brand too. Even utilitarian vehicles like Maruti Suzuki Ertiga or Toyota Innova are experiencing an increase in sales.

#4 Pay Less Insurance Premium

One, you buy an expensive car and second, you keep paying an extra premium for it. Why would a wise customer choose such an option when he can avail the same car at a much lesser? And also, a decreased insurance amount. A car’s value depreciates extensively in the first year of purchase. From Year 0 to Year 1, it goes down from 100% to 71% which is almost 30% whereas from Year 2 to Year 6, it depreciates from 65% to 45%. Therefore, affecting the premium payout accordingly. If you are a smart buyer then consider buying a car which is in its first year. While the used car market is only 8% organized till now but with efforts of organized players combined with an increase in customers’ confidence and requirements, it will grow at a faster rate in coming few years. In years to come, major brands like Maruti, Toyota, Hyundai will keep facing rough patches of sales until and unless new alternates are not worked out.