Short supply limits the pace of used cars

Jan 15, 2021 2 min read
Short supply limits the pace of used cars

Amid COVID-19 pandemic, car owners are reluctant to sell their old car and buy a new one. This has decreased the supply of vehicle in the used-car market. Check out all you need to know.

As consumers are delaying their purchases for new car and holding on to their used vehicles because of the coronavirus crisis, it is expected to stifle sustained demand and sales as there will be short supply of pre-owned cars.

As per Srivastava, executive director of Maruti Suzuki Ltd, replacement of car buying has reduced during coronavirus crisis which leads to short supply of popular brand models in the used cars space. Customers of replacement car buyers are selling off their existing cars in exchange for a new one. “People aren't willing to get rid of their old cars to buy a new one," he said. While first-time car buyers comprise 45% of new car sales in India’s passenger car industry, additionally, customers and replacement car buyers contribute around 30% and 25%, respectively.

He also mentioned, “The demand for used cars has gone up substantially, and it is reflected in the enquiry levels, which are up around 15-18% year-on-year in a market (for new cars) that has declined by 18% so far this fiscal year. Moreover, the main cause in the used-car space is not of demand but of supply". Also, this shortage of supply caused by the replacement demand will correct itself once the situation of economy improves, he added.

Also, the managing director and chief executive officer of Mahindra First Choice Wheels Ltd, Ashutosh Pandey, said short supply will remain the biggest concern, but it will get improve in fiscal year 21-22. “The new automobile market would grow in FY21-22. This also means that there will be an increase in supply of used cars in the market as pre-owned car volumes are derived from the overall car parc," said Pandey. He also added, 20-25% of new cars sold every year come to the pre-owned car market and the used car market may watch sales of about 3.6 million units in year 2020-21 as compared to 4.2 million in FY20.“As pre-owned cars are sold directly to the dealers are expected to stay stagnant, we tend to see an increase in the supply of used cars by way of increased re-possessions by financing institutions in the coming months," he said, by adding that increased vehicle repossessions by lending institutions is already being seen in the market.

However, he maintained that the demand-supply mismatch will continue for popular models like, Hyundai i20, Dzire, Maruti Swift, WagonR, Mahindra Scorpio, and Honda City.

CARS24 Services Pvt. Ltd, the co-founder of used car sales platform, Gajendra Jangid, who sold more cars as compared to last year, said fewer buyers are approaching automakers to exchange their old cars for new models. “As fewer buyers are going for exchange, an Original Equipment Manufacturers (OEMs) are facing a supply crunch. It is because consumers are now ready to buy used cars in exchange for existing cars, which was not the rule earlier. This trend will continue to grow and while OEMs may see a supply crunch, used car players will continue to see a surge in transactions."

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