Organised players, growing acceptance boost India’s used car market

January 31, 2014

One would expect the former head of India’s No. 1 car maker to drive a glitzy new SUV or an imported luxury car, but Jagdish Khattar thinks differently. The industry veteran who spent 14 years at Maruti Suzuki now buys only second-hand cars and drives a used Volkswagen Passat.

Rich people buy new cars, intelligent people buy second-hand cars,” said Khattar, the founder of Carnation Auto, a service and used-cars company he started in 2008 after leaving Maruti. The used car market, he said, is the future of automobiles.

The rising presence of well known car brands in the used cars business, coupled with growing acceptance of second-hand vehicles, is spurring demand. That is putting in shape the largely unorganised used-car business at a time when new car sales have slumped for the first time in more than a decade.

Customer-to-customer sales and small dealers still dominate used car sales in India, while workshops and mechanics also double up as agents to help people sell or buy cars.

Now, companies such as Maruti True Value, Mahindra First Choice and Carnation Auto account for about 15 percent of the market share, experts said. Despite a slowing economy and a gloomy outlook for India’s auto industry, these companies are expanding.

Mahindra First Choice, the multi-brand used car division of leading automaker Mahindra & Mahindra, has added almost 100 new dealership stores since April and sold nearly 60,000 used cars, 40 percent higher than the previous year, its chief executive Nagendra Palle told India Insight.

“A large part of our growth is coming from the network … we grew the network as there is demand,” Palle said. “We are also expanding out into the suburbs and Tier-2 (cities)”.

Maruti True Value, part of India’s No. 1 car maker Maruti Suzuki, has also increased its footprint. By December, the company had 507 outlets in 309 Indian cities, up from 429 outlets in 245 cities a year ago.

Car makers in India, the world’s sixth-largest auto market by unit sales, sold 1.8 million new cars in 2013 as compared to 2 million the previous year, as rising fuel costs, interest rates and a slowing domestic economy hit buyer sentiment.

Though no official data is available, experts peg the annual sales of used cars at about 3 million units, making it a bigger market in comparison to new car sales. Over five years to 2017, RNCOS Research expects average annual growth of 16 percent in the segment.

Crisil Research, in a note released in September 2012, forecast that annual used car sales will treble to about 8 million units by 2016-17, making it a 1.5 trillion rupee market. Factors such as increasing share of organised companies in the business, people switching cars sooner, lower prices in the segment and easy availability of loans are likely to boost demand.

Another key factor that experts believe is driving demand is greater acceptance of such vehicles, with Indians becoming more comfortable with the concept of driving a car previously owned and driven by someone else.

“That stigma of owning a second-hand car is going at some stage, you don’t even call it a second-hand car, we call it a used car now,” said Vikram Alva, head of marketing at, which has about 25 stores selling and buying used cars under their brand.

While CarTrade plans to increase its tally to 150 dealerships in coming years, Khattar of Carnation Auto has set a target of having 150 to 200 stores in three years, from about 40 currently.

Such companies are helping customers like Keshav Verma, a former World Bank director who returned to India after 16 years. Verma wanted a new automatic car for his daughter who is not used to driving on Indian streets.

After noticing that automatic versions of cars such as Honda Brio and Hyundai i20 were exceeding their budget of 600,000 rupees ($9,600), Verma turned to Carnation and bought a used automatic Honda City.

“If you are getting a much smaller car for 680,000 rupees and you are getting a mint condition say Honda City two-year-old at the same price or much less, then it is safer — it’s a bigger car to drive,” said Verma, who bought five used cars when he was in the United States.

Though the Indian used car market is expected to grow, it is relatively smaller when compared to the United States or China. Around 40 million used cars were sold in the United States in 2012, according to a report by Manheim Consulting, while China clocked sales of 4.8 million units.

With the entry of branded companies in India, small players in the used cars business have been badly hit. Such dealers, who showcase used cars outside their tiny outlets with “buy, sell or exchange” banners, make money by charging commissions.

In Delhi’s Karol Bagh area, home to the capital’s biggest market for used cars, many agents have seen monthly sales fall by half in recent years, forcing some to consider shutting shop.

“We were selling 15 used cars every month earlier, now we only manage to sell 7-8 cars … organised industry players give benefits such as warranties which we do not,” said 40-year-old Davinder Anand, who has been dealing in used cars for over two decades.

Also affecting the business of small players are websites such as Quikr and OLX that allow customers to post free ads for selling cars. Quikr has around 50,000 cars listed as used cars for sale in Delhi and over 400,000 across the country.

“Websites have made our life tougher,” said Sudhir Gupta of Chirag Motors, one of the dozens of used car shops in the area. “Earlier, customers used to walk in to sell their car, now we use our contacts and visit their homes to strike a deal.”

(Editing by Robert MacMillan; Follow Aditya on Twitter @adityayk and Robert @bobbymacReports | Disclaimer: This article is website-exclusive and cannot be reproduced in any form without permission)

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I am also very fond of Mahindra cars as they offer great quality of new cars as well as used that too after valuation.

Posted by jayshree5rt | Report as abusive