Used car market on a roll, set to grow 11%

The sentiment slowdown may have hit new car sales but the used car market is still in top gear. According to a top industry official, India's used car market, roughly the same size as the new car market, will grow 10-11 percent this year compared to the 3-4 percent growth expected in the new car market.

"Typically, we have seen a 5-7 percent differential between the sales growth in the used and new car markets," said Rajeev Dubey, M&M's president, group HR and after market and member of the group executive board. 

"This year, the organized sector in the used car business should grow about 15-17 percent."

The good news is that used car sales are typically less affected and see a slower fall in growth than new cars in a market hit by slowdown. The potential, he says, is huge given the trajectory that most auto economies follow. "In the US, for instance, for every one new car sold, the industry sells around 2.8 used cars," he said. "In India, that ratio is still 1:1. As the economy develops and more new models are introduced, people change cars more frequently and the ratio of old to new also keeps growing."

Despite a healthy pool of models to choose from and a good growth clip, India's used car market has some inherent problems. For one, financing is still very difficult and interest rates are exorbitant compared to new cars. For another, despite the organized sector now making inroads, a large percentage of sales are still controlled by the unorganized sector.

"Right now, only 11 percent of the used car market is organized and that too is dominated by OEMs (vehicle manufacturers) whose basic purpose is to boost the sale of new vehicles through exchange programmes," said Dubey. The lion's share of the market - around 60 percent - is C2C (customer to customer) and another 28% is handled by the friendly neighbourhood broker.

As for the interest rates, "That differential is going down and will narrow down further as the size of the organized market in the used car space grows," said Dubey. The organized players too are stepping on the gas given the kind of growth rates in the used car business. "Long-term, the growth rate of the used car market will definitely be higher than the new car market," Dubey said.

Not surprisingly, M&M's after market business, Mahindra First Choice, has some aggressive targets lined up. Last year, it sold 34,000 vehicles and the year before 28000. But the target for the current year is 45,000 vehicles. "We will grow 35 percent this year," said Dubey. The target is to hit 100,000 vehicles by FY15.