Used car sales zoom as auto sector lags

New car sales are inconsistent, with subdued growth in low single digits likely in 2014-15, but the used car segment is growing by leaps and bounds.

Led by the proliferation of organised businesses such as Maruti True Value and Mahindra First Choice, used car sales have grown in high double-digits this year, and the trend is likely to continue for the next few years, according to industry insiders.

Part of this demand is coming at the cost of new cars as customers veer towards used cars whenever there is a squeeze in liquidity due to high interest rates.

The segment has matched the scale of new cars at over 2.5 million cars per annum last year, and is pegged to outstrip it at around 2.8 million unit sales this year.

"Exchange accounts for 30% of our new car sales. This used to be a mere 4% around 10 years back," said RS Kalsi, executive director, marketing and sales, Maruti Suzuki India Ltd. "In fact year-on-year the exchange penetration has strengthened, as part of a focussed strategy of the company to expand this business to drive new car sales. We are targeting over 300,000 mark this year."

He said the company sold 270,000 units (via exchange) in 2012-13. "As far as used cars are concerned we have sold 200,000 units so far this year," Kalsi said.

The used cars business is still largely unorganised, with players such as Maruti constituting just 15%-20% of the total business.

However, the organised chains are growing fast. Maruti True Value currently has 760 outlets spread over 550 cities, while Mahindra First Choice has just opened its 400th outlet, expanding its presence to 220 cities.

"The used car market has been stronger than new car sales and though we have our upturns and downturns, it is muted compared to new cars," said Naginder Palle, CEO, Mahindra FirstChoice Wheels Ltd.