Who is more likely to purchase used cars, and why

If recent reports are to be believed, then many people living in metro cities will opt out of public transport, and go for private vehicles, post lockdown.

Will owning a car, which has so far remained a luxury in India, become a necessity now? Buying a car in India has always been aspirational. “It is the second biggest investment for Indians, after their house,” says Shashank Srivastava, executive director, Maruti Suzuki India. Over the last fortnight, several reports suggest that a significant number of people living in metro cities will opt out of public transport, and go for private vehicles, instead, post lockdown. So, what’s the reason behind this change in behaviour? Well, first, the fear of getting infected while using public transport, the unavailability (or limited availability) of Ola and Uber cabs, given the new 'maximum of two passengers’ rule, etc.

"Fifty-five per cent of the customers who are using cab aggregators told us, during our survey, that they would like to buy their own car, post lockdown. Forty-five per cent in the segment using public transport said they would like to travel using their own car," says Gajendra Jangid, co-founder and CMO of Cars24.

Mahindra's 'The Changing Gears' research on the impact of COVID-19 on the automobile industry also assessed a possible rise in the demand for cars. It found that enquiries for used cars have doubled during the crisis. Cars24 also predicts a surge in the demand for used cars. "While the consumers are likely to accelerate their purchase decision, considering the economic condition, it is possible that instead of investing on a new car where the value depreciates by 20 per cent within the first year itself, they would rather purchase a used car," opines Jangid.

Ashutosh Pandey, MD and CEO, Mahindra First Choice Wheels, is of the opinion that while there is a lot of interest among people at this stage, all of it is driven by fear. "What we are doing now is asking people about their opinion, when they are scared in the middle of a pandemic. We are then intellectually assessing the data and forecasting a scenario which shows that there is going to be a rise in demand for cars. However, buses have started plying in Kerala, and they have made the seating arrangements in a manner that follows the social distancing norms. I am sure Ola, Uber and others will also come up with similar arrangements. And once people witness that, we will have different numbers, as in India, buying cars is not just an intent-driven decision, but it is based on many other factors," he adds.

Srivastava says that 85 per cent of the consumers who go for used cars are two-wheeler users buying a car for the first time. Of the remaining 15 per cent, he says, eight to 10 per cent buyers of used car already own a private-fourwheeler. "These are the profile of the consumers who go for used cars, and I don’t see any drastic change in that.”

The automobile sector has been going through a slowdown. Passenger vehicle sales declined year-on-year by 16.40 per cent during April-December 2019. As per reports, used cars, on the other hand, registered a growth of about 12 per cent in 2019, compared to the calendar year 2018. The total used cars market was estimated to be around 4.20 million units in 2019, compared to 3.38 million new passenger vehicles. Apart from COVID-19, the BS6 emission norms will also push up the demand for used cars in India, believes Pandey.

The central government has mandated that vehicle makers must manufacture, sell and register only BS-VI (BS6) vehicles from April 1, 2020. Experts believe that the BS6 varients would cost Rs 10,000 to 50,000 more for petrol and Rs 50,000 to 1 lakh more for the ones that come with a diesel engine.

Like Cars24, Mahindra First Choice’s research also found a trend of consumers downgrading the budget they had earmarked to purchase a car, "They are more likely to downgrade by 20-30 per cent," says Pandey. The percentage of people willing to shift to a private car, post lockdown, is highest among the household income bracket of Rs 60,000-1.2 lakh, and people over 35 years old. Jangid believes the surge in the consumption of used cars will be driven by metro cities, while Mahindra's view is that the demand is going to be across markets.

“When we talk about downgrading, the surveys show that it is going to be a trend across the chain, including new cars. Somebody who has an Audi, and was planning to buy a Mercedes, might downgrade to staying with the Audi, or buying an Elantra. Similarly, someone who had plans of buying an Elantra, might drop to Creta, and the Creta guy will drop to Vitara Brezza, and someone who planned to buy an Alto, might just opt for a used car. There is downward shift in demand, not evaporation,” opines Srivastava.

He adds, “If there is an increase in the demand for used cars, it does not mean that there is an evaporation in the demand for lower-end new cars. People who were buying Swift and Baleno will now buy a new Alto.”

Jangid says that 40-50 per cent of the consumers who buy used cars from the platform (Cars24) are first-time car owners. He sees that number growing. "… There are many families which would like to purchase their second car to ensure each and every member is travelling on a private vehicle."

Pandey feels otherwise. He says that second car purchase decisions will get deferred, considering the economic condition. He also believes that people will defer their decision to trade off old cars with new ones, which could result in starvation of supply of used cars. If that happens, the price of used cars will go up. "That is going to be the biggest challenge for the segment," he says. He, however, feels that the players in the business, especially the unorganised ones, will not let the price go up to that extent.

When you purchase a car, a lot of human interaction happens, like meeting people and visiting dealerships in groups. In India, the whole family goes together to buy a car, takes multiple test-drives and then brings it home. Cut to the present times, with the COVID-19 scenario, contactless is the new normal. "It is not possible for automobile, like many other sectors in the country, to go completely contactless. However, we are capable of delivering a car at the doorstep. Having said so, we have found, in our research, that people are willing to visit dealerships to see and buy new vehicles. That is not going anywhere," adds Pandey.

Jangid feels marketing will play a key role in ensuring people feel safe while buying cars. "We are following all protocols - completely sanitising the car before handing it over to the customer, all our employees are wearing PPE kits, and we will communicate it through our marketing initiatives," he adds.

All the surveys suggest a possible spike in the ownership of cars in India. “In the long run, it will happen,” says Srivastava, adding, “We will have to wait for some time to find if the actual buying behaviour reflects what the logic and consumer surveys suggest.”