ICRA expects Indian used car market to outpace domestic new car sales growth

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ICRA

ICRA expects growth momentum in domestic Passenger Vehicle industry to accelerate with 5%-7% in FY16 and 8%-10% growth thereafter. The growth will be driven by improved customer sentiments in the backdrop of lower cost of ownership and aggressive new models launches planned by OEMs across spectrum of PV segments (small cars/sedans/UVs) over next two years, says ICRA in its latest research update on Passenger Vehicle Industry.

Indian domestic PV market can be broadly divided under three consumer segments, i.e. First Time Buyers (FTBs), Replacement /Exchange customers and customers opting for additional car. Car being a discretionary purchase, FTBs purchase decision are impacted the most by increase in operating cost and macroeconomic headwinds. As per ICRA estimates, FTBs accounted for ~50% of overall new car purchase during 2012, which came down to ~37% in 2014 owing to increasing operating costs. Over last one year, gradual but steady decline in fuel prices (especially petrol), easing financing norms and overall improved customer sentiments has helped in return of FTBs in current fiscal. Consequently, small car segment, which constitute major share of FTBs purchase will witness improved volume traction going forward.

Supported by entry of organized players, increasing awareness and financing option, Indian used car market is one of the key beneficiaries of slowdown in new car market. Over last three fiscal, there has been steady increase in domestic PV fleet age as customers deferred their new car purchase and few of them opted for pre-owned cars. Indian used car market, which is currently about 1.2x of new car markets is still quite small as compared to developed market (~3.0x). Considering strong growth potential as well as strong synergistic benefits to their new car business, many OEMs have entered into used car retailing bandwagon. While customers benefited from quality assurance and financing availability with entry of organized players, OEMs are able to tap replacement demand through exchange programme. ICRA expects Indian used car market to outpace domestic new car sales growth in the near to medium term.

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