Slowdown hits pre-owned car business, too

A slowdown in the new car segment has hit used/exchange car market as well, though demand for small and diesel cars continues to remain strong.

As increase in fuel prices and rising inflation dampens overall demand, second-hand car dealers, too, are finding it difficult to get enough buyers.

The overall pre-owned car business grew almost 20% in 2010 while the organised used car business growth was 50%. The industry is expected to grow at a slower pace this year.

According to the Society of Indian Automobile Manufacturers, May car sales were the slowest in last two years. Domestic passenger car sales grew 7% — the lowest percentage gain since a 2.8% increase in May 2009. The auto industry which grew around 32% last year is expected to see growth rates halving this year.

“Generally, the growth in new car market mirrors the growth of used car market. The overall slowdown in the economy is reflecting in the pre-owned car segment. However, it is difficult to calculate the exact decline in sales due to the highly unorganised nature of this segment,” said Sumit Bali, CEO - car finance, Kotak Mahindra Prime.

“The used car market has been growing at a very slow pace of 3-4% this year. We expect the market to remain slack at least till August. The monsoon is generally slow for the auto industry. Cars within the A and B categories are growing, while C and D segments have slowed down,” said Nipun Jolly, manager at the used car/exchange division at Fortune Cars.

For Mahindra First Choice, the used car industry has been affected marginally by the auto industry slowdown. “The growth rates in the organised industry have fallen from 50% to 30% in the first two months of the year. This has more to do with the high rate of interest, higher cost of ownership due to change in fuel prices and overall uncertainty in the economic scenario,” said Ashesh Dhar- VP-operations, Mahindra First Choice Wheels Ltd.

Sumit Bali of Kotak Mahindra Prime said the demand for diesel cars continues to be robust in the used car market. Diesel variants of cars like Polo, Vento, Verna and Innova are selling like hot cakes, he said.

“There is still a strong demand for cars up to `5 lakh. Slowdown, if any, is in the higher cost segment. Also, the preference for diesel cars is high while preference for petrol models has slowed,” said Dhar.

The non-availability of new cars is also affecting the car exchange business, especially the dealers of Japanese car brands are facing the dearth of new cars. “Customers will sell their old cars only if there are new cars available in the market. Till May we did not have enough stock to sell. Hence, no exchange was happening,” said Vijay Yadav, general manager for used cars, Millennium Toyota.