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Feb, 02 2017


With demonetization, the Indian pre-owned car industry is again gearing up for a smooth drive. Mahindra First Choice Wheels gives you a real picture of this industry.

The used car market plays a critical role in the new car industry as it enables over 900,000 trade-ins (exchanged vehicles) at new car dealerships. These trade-ins are essential for new car sales. Below are the effects of demonetization on pre-owned and new car sales.

Cash Crunch

The finance penetration in the used car industry was declined 15 per cent compared to the new car industry, which is at 65 per cent. Around 85 per cent of the used vehicles, therefore, either are cash purchased or through other informal borrowings. The finance penetration is even low in the non-metros.

The paucity of cash has led to consumers delaying their purchasing decisions, as a result of which there are fewer footfalls in car showrooms and poorer sales in November, although December showed some steady recovery. The northern and eastern regions of India were severely affected by the recent move.

The Crunch Effect

Around 38,000 in-market customers were surveyed to understand the impact of this economic discontinuity on the consumer purchase cycle and the resulting pent up demand. The data showed a sharp decline of almost 13 per cent between April 2016 and October 2016, as the customers intended to complete the car purchase cycle in 30 days. It also pointed out that the customers postponed their decision to buy as they had other immediate priorities to deal with.

However, it is important to understand that the customers have not abandoned their decision to purchase the car altogether. With fundamental growth drivers of the used car market remaining intact, this pent up demand will get serviced when the consumer purchase cycles return in the coming months. We expect recovery of the volume in January.

Smooth Drive Ahead

A conclusion was drawn from the US recession in 2007-08 to understand the economic discontinuity and its impact on the used car prices. The used car index registered a sharp dip in January 2009 and then recovered sharply in the subsequent period. In the coming months, we expect a smooth recovery of used cars’ demand and prices in India.

• The organized segment of the used car market will grow faster against the expense of the semi-organized or unorganized market.

• Finance penetration will increase from 15 per cent to 25 per cent in the next 12 months.

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