'Bright future' for Indian used cars market in pandemic: RedSeer report

8.3 million units in sales expected by FY26 as people prefer to use their own vehicles for travel.

India’s used car market will grow at a compound annual growth rate (CAGR) of 11 per cent to log sales of up to 8.3 million units by FY26, according to consulting firm RedSeer, marking a trend of people preferring personal vehicles for travel in the coronavirus.

“This has paved the way for a bright future in the used car market,” said a report by the company.

Data monetization, in-vehicle connectivity, subscriptions, rental, charging, and long-term maintenance packages are expected to comprise a large share of profits in the used cars business. A reduced period of car ownership among the millennial demographic has also been observed and is a key contributor to the growth in the used car segment.

Other factors like the transition from BS-IV to BS-VI, and GST rates differential on purchase of used cars versus that of new cars are some of the growth drivers for increasing used cars. The Indian used cars market is the fifth largest in the world.

The market comprises 30,000 dealers as of now, making it an extremely fragmented space. Of the existing dealers, close to 45 per cent are commission agents or brokers. Most of them have no physical space of business, and operations are bound to be unorganized. Unorganised dealers have low productivity as they face price-led competition from unorganized brokers or C2C (customer-to-customer) transactions, said the RedSeer report.

Key players are adopting digital best practices and incorporating them effectively in their dealership models. It is estimated that most new car dealerships are now connected online via the OEM online network, and benefit from targeted leads( via OEMs and auto portals). Out of the 30,000 used car dealerships, at least 4,000 are spent consistently on online auto portals.

“All in all, the used car segment is all the rage, and if backed by the best that technology has to offer, it will surely see unprecedented growth,” said the report.

The pre-owned car market is set to more than double to 8.2 million units or $47 billion over the next five years ending FY26 from 4 million in FY21 or $17 billion, which means that two used cars will be sold for every new car sold, according to a report by JM Financial.

The used-car market was 4.4 million units worth $19 billion in the pre-pandemic FY20, according to the report that also forecast a clear highway for the used-card market driven by the pandemic-induced demand for personal mobility and affordability because after the BS-VI implementation cost of new cars has been on an upswing.

Droom, Ola, Cars24, CarDekho, CarTrade and Spinny are among companies betting on this market. Cars24, an e-commerce platform for pre-owned vehicles, in November raised $400 million in funding at a $3.3-billion valuation. Used car retailing platform Spinny raised $283 million in a funding round from new and existing investors.