More than 3 million used car sales happened last year in India, the number is even bigger than the new car market, which accounted for about 2.5 million unit sales. The difference is not astonishing if you consider the industry trends worldwide in which the used car market is much mature and thus bigger than what it is in India. In the US, for example, the used car market saw more than 9 million sales in the Q3 2015, while the new cars sales for the same quarter were about 4 million. Similar trends were observed in another country, UK (which is more closely related to the automotive industry in India), in which the new car sales were less than 3 million in the year 2015, quite less than the used car sales, which were more than 7 million.
The used car industry in India is at present largely unorganized, with majority of sales coming in through roadside dealers that sell cars without any warranties and or any regulatory framework of their own. With growing number of web aggregator companies that are showing interest in this sector, it appears that this industry would get more organized in coming years.
Other than India’s major car manufacturers, like Maruti, Hyundai, Honda, etc., the German trio BMW, Mercedes and Audi have already set up their used car division in the country. With the market gearing towards greater organization, it is expected that significant redistribution of sales numbers would take place among organized and unorganized players. In effect, the quality of used cars available through different channels would go up.
In addition to Renault, which made an announcement recently at the Paris Motor Show and made it clear that it would be making foray into the used car business in India, the US-based used car industry major, Cox Automotive, is also bullish about the used car market in India and has recently (25th November, 2015) bought a stake in Mahindra First Choice (a CPO division of the Mahindra Group). Joe Luppino, the chief corporate development officer, Cox Automotive, said about the development, "Our investment in Mahindra First Choice Wheels, furthers Cox Automotive's strategic plans to create and grow used-vehicle market places. This opportunity allows us to partner with a company in the fast-growing Indian automotive market."
Unlike Europe and other mature markets, where the demand for new cars is now on the rise and used car demand shrinking, India is witnessing a reverse trend. The Indian used car market is growing at about 15% each year and it is expected that the growth would double in next few years. With new organized players and emerging web aggregators making their foray into the business, the number of used car outlets is also set to increase and would be another important growth driver for the companies. Other than that, the companies that have little presence in the tier II and tier III cities would be expanding into new regions, which would be another significant contributor.
Another development that is taking place is in the tax regime, and it should ideally make new small cars cheaper from April 1, 2016, in India. Once the comprehensive indirect tax, GST (Goods and Service Tax), is in place, car manufacturers would need to pay about 17-18% tax on small cars instead of 30.4% percent. While the price of new small cars might witness a drop in price by 10%, the larger sedans and SUVs would get cheaper too by about 4-5 and 12-14%, respectively. The GST would make used cars expensive to a certain extent and the combination of reduced new car prices would have adverse effects on used car sales, and this has worried the organized used car businesses.