Opinion: Will used cars be the dark horse of COVID-19 era?

The last two months have been difficult and it has led us to see things differently, particularly when it comes to commuting. With India now in the ‘Unlock’ phase, and the Coronavirus not going anywhere anytime soon, travelling by public transport isn’t on top of anyone’s priority list. The need of the hour then is personal transportation.

This should naturally lead to increased car sales. However, that might not be the case, atleast not with the new car segment reeling under the pressure of increased prices courtesy of the BS6 norms and increased safety related equipment, and the lockdown which has completely disrupted car production and related logistics. To put things in perspective, new car sales were zero in April, and the sales figures weren’t all that great in May either.

The onus of personal transportation, as a result, might fall squarely on used cars. With the increase in new car prices, the divide between used and new cars has only widened. Furthermore, there are other triggers that should help the offtake of used cars.

Manageable interest rates: Private banks are offering loans of up to 80 per cent of a used car’s market value at fixed interest rate of anywhere between 10.5 per cent to 13 per cent. Rate of interest for new cars, in the meantime, hover at around 10 per cent as well. The nationalised banks on the other hand offer funding of up to 80 per cent of a used car’s market value at a floating interest rate of anywhere between 8.9 per cent to 12.6 per cent. 

As is clear, the interest rates for used cars are as manageable as they are for new ones. But, the former can be had at a much lower price even for a car of the same size and equipment as a new one. This means the buyer doesn’t have to shell out a lumpsum amount from the savings, thereby easing the financial burden. As a result, it’s just easier and more lucrative to buy a used car, especially in these uncertain times. 

Reliable used cars: Another fact stacked in the favour of used cars is that the market for pre-owned cars has gotten a lot more organised in recent years. Pre-owned car dealerships now offer various benefits in the form of pre-inspected certified cars, warranty and easy finance options. The customers can also choose from a wide variety of brands under one roof. 

Now one might argue that the organised sector for used cars is still small in the overall scheme of things with the business currently accounting for only 18 per cent of the market. But, it has been growing year-on-year, and with new OEMs constantly entering the fray, it is only poised to garner a higher share. What’s more, with the organised dealerships offering similar benefits as new car dealers, in terms of service, warranty and exchange offers, it might sway quite a few buyers away from spending nearly 30-40 per cent extra for a new car. 

OEM certified pre-owned cars: As mentioned, OEMs are looking at the used car market with great intent. Car makers like Maruti Suzuki, Mahindra and Mahindra, Toyota, Nissan and Volkswagen are expanding their business in the organised used car segment. The trust factor is naturally stronger when a manufacturer puts up a certified used car on sale. The growing focus on used car business, while being hopeful of new car sales to improve in the coming months, is an indication of used car business to steal limelight in this financial year.     

Conclusion

The need to feel safe is stronger than ever before which will lead people to choose personal mobility over shared mobility like public transportation and cab services. Additionally, financial institutions are working actively towards bringing down the financial burden that comes with taking loans. And of course the used car outlets are getting more organised and with it, more trustworthy. 

Add to it the price differential between new BS6 compliant cars and comparative pre-owned models, and the fact that jobs and salaries are getting affected for the worse, we see tremendous potential for used cars; even more than new cars. Not to mention, from the safety perspective there will also be a considerable number of two-wheeler users who might decide to upgrade to a used car this year.