ECONOMY

Used Car Prices Spike As Pandemic Fuels Buying Frenzy

The challenge in supply got exacerbated during the financial year 2021 due to the slowdown in new cars sales, leading to lower exchanges and higher preference for used cars in place of public transport, Ashutosh Pandey, managing director and chief executive officer at Mahindra First Choice Wheels Ltd., said in an emailed response to BloombergQuint.

If the demand has gone up 133%, supply has increased 120%, Amit Kumar, chief executive of Naspers-owned OLX Auto, said. For Carwale, according to Chief Executive Officer Banwari Lal Sharma, the supply shortage is as high as 18-20%.

The pandemic has influenced the decision to buy. According to a report by IndianBlueBook, a used vehicle valuation website, 65% of people decided to buy a vehicle citing Covid-19, while 29% of used-cars buyers were not at all considering purchasing a vehicle prior to the coronavirus spread.

Most buyers seek entry-level hatchbacks. Sports utility vehicles come next. Maruti Suzuki’s Swift, Dzire, Wagon-R, Baleno’ Hyundai’s i20, i10, and Mahindra’s Scorpio are some of the most-bought models, according to Olx and Mahindra First Choice.

“This has been the best year of growth over the last five to six years,” Sharma of Carwale said. The company has surpassed pre-Covid levels, with demand up 30% over fiscal 2020, Sharma said. In the fourth quarter, the organic traffic, people visiting on the platform rose 48%.

For OLX Auto, which claims to have an 80% market share, the demand is up 133% over last year. As the lockdown restrictions were eased, the demand was led by rural areas, Kumar said. But as the relaxations expanded, urban centres caught up.

Demand continues to surge. “If there were 29 replies for one car posting on OLX Auto in November, it has gone up to 39 replies on an average as of February.”

Gurugram-based Spinny, which raised $65 million round at $350 million valuations earlier this week, said its sales more than doubled from FY20. The firm’s inventory jumped likewise.

Sales of secondhand luxury cars zoomed too. Big Boy Toyz has seen its demand jump 45% over a year earlier.

That’s prompted automakers to also increase focus on the used car market.

Mahindra First Choice saw a 20% increase in revenue in fiscal 2021. The company added 200 stores last fiscal, taking the total count to 1,150.

Still, the market largely remains unorganised. While online portals are the most preferred channels for tier 1 and 2 consumers, local car dealers dominate smaller cities.

Rising internet penetration and awareness are changing that. The number of transactions through organised channels has more than doubled in the past decade to 21% in fiscal 2020, according to a Nomura report.

Mahindra First Choice expect 32% of the industry to be organised by fiscal 2025 as customers are now increasingly looking at a more transparent buying experience for buying and selling cars.

Suraj Ghosh, who leads the South Asia division of powertrain and compliance forecasts at IHS Markit, is hopeful for the replacement market to pick up if the new car sales grow at the current pace without much disruption from the second wave of infections.

“If the new car sales continue, which means someone will be selling an old car to buy a new one, it could ease the supply shortage in the secondhand market.”

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