Thrifty Indians May Drive Used-Car Sales During Pandemic

“The situation doesn’t permit me to spend at this stage,” the 58-year-old vice president of sales and marketing at QuadLabs Technologies, a travel tech firm, told BloombergQuint from Gurugram over the phone. “We don’t know what will happen next, and I wanted to limit my expenses. You never know when you need the money.”

He sold the diesel Scorpio for about Rs 4 lakh, and added Rs 1 lakh more to buy a Honda Amaze sedan from Spinny, a used car platform.

Rajan’s cautious choice sums up the sagging sentiment among urban consumers as the coronavirus lockdown stalled economic activity, triggering layoffs and salary cuts. That may depress demand for new cars and prolong the worst auto slowdown in two decades that saw dealerships shutter outlets and companies lay off contract workers. But used-car businesses expect sales to rise as people choose personal mobility over public transport during the pandemic.

Consumers may reduce, if not avoid, travel by public, pooled and shared transport in the short term, according to Anuj Sethi, senior director at Crisil Ratings. “With muted income growth, discretionary spending will take a backseat this fiscal,” he said. “Small passenger vehicles and used vehicles will find favour owing to better affordability.”

“We believe demand will skew towards the used car market because of affordability and requirement of personal transport going up,” Shashank Srivastava, executive director of sales and marketing at Maruti Suzuki India Ltd. told BloombergQuint. India’s largest carmaker sells pre-owned cars through its True Value outlets.

Srivastava also pointed to a general downward shift in buying. “Someone (who) wanted to buy an SUV is going for a sedan; a smaller sedan buyer is going for a hatchback; and hatchback or entry-level buyers might choose used cars.”

Spinny, Carwale, CarDekho, and automakers including Maruti Suzuki and Volkswagen India Pvt. Ltd. are seeing an uptick in this demand.

Spinny, a Gurugram-based used car platform backed by Infosys co-founder Nandan Nilekani’s Fundamentum and Accel Partners, has been able to reach 60% of pre-Covid-19 business in the last three weeks, according to Niraj Singh, founder and chief executive officer. The turnaround time for buying has also come down from a week to 3-4 days, and about 60% of the traffic is of first-time customers.

“Today, customers know what they’re looking for and are quick to make a purchase,” Singh said, adding that he expects used-car sales to reach pre-Covid-19 levels by July. He expects it to grow 10% month-on-month after July.

CarDekho and Carwale said customer traffic has reached about 99% and 90% of the pre-Covid-19 levels, respectively. For CarDekho, hatches and low-budget mass market models are the most in demand, according to its blog. Carwale told BloombergQuint sedan sales are growing more than 9% over the pre-virus period.

Volkswagen India, with 105 Das WeltAuto used-car dealerships, expects sales in the category to rise at a faster pace.

“There’s a huge opportunity in the used car segment and we’re seeing inquiry levels matching pre-Covid-19 levels in our multi-brand pre-owned cars segment,” Steffen Knapp, director of Volkswagen Passenger Cars India, said. “We expect the business to grow by 15-20% over the last year.”

Subscription And Sharing

Consumers are also opting for self-drive service providers.

Zoomcar, backed by Mahindra and Mahindra Ltd. and Ford Smart Mobility, has seen subscription business that offers cars for 1-6 months grow faster than the self-drive service used for daily or overnight travel, according to founder Greg Moran. “There’s four- to five-time jump from pre-Covid levels in the subscription demand.”

Moran said people are considering personal mobility with seriousness. “This is the trend that’s only going to intensify,” he said. “The overall demand will continue to boom for personal mobility solutions.”

Supply Concerns

The used car industry may, however, face supply issues as sale of new cars declines. That’s because not enough people are selling cars to buy new ones, called replacement market in industry parlance.

“Car upgrades probably will be lesser this year because people might have seen a loss of pay or business this year, and there will be a downward pressure in terms of affordability,” Srivastava of Maruti Suzuki said, adding that consumers might even put off selling cars or upgrading.

“That means replacement car buying will come down, and that’s an issue,” he said. He said the replacement market is already down from 25% last year to 18% now—or for every 100 cars sold in India, 18 were bought by exchanging old cars.

Banwari Lal, chief executive officer at Carwale, agreed that supply and demand will be a challenge. “There’s a much wider gap between supply and demand as the market was literally shut for two months,” he said. If supply doesn’t improve, it could lead to dealers shutting down or prices in the used car market going up, Lal said. But he sees improvement in sentiment around the festive season staring October.

Meanwhile, Rajan, who is used to driving an SUV, is now getting acquainted with a sedan. There’s a difference in experience, he said. “But that’s a compromise I’m ready to make.”