Friday, 17 October 2014

With used car retail sales on rise, a usable 'used' car costs less than a motorcycle in Chennai

When Maruti 800 was introduced in 1983, the manufacturers’ tag line was to introduce the dream of a car to the middle class Indian family. Three decades later, the iconic first small car might have gradually been phased out but it has brought a revolution that even the makers of the vehicle would not have imagined.

In Chennai, which has now been called ‘Detroit of India’, cars are available for even as a low as Rs. 25,000/-, thanks to the booming used car market.

Cars have now become so affordable that most families who are even in the middle and lower-middle class can afford a decent used car mostly for going out on weekend outings. A casual search on any of the popular e-commerce websites used to buy and sell used cars would reveal dozens of used cars, most of which are in good condition, at prices below Rs. 50,000/-.

“Low prices do not necessarily mean that cars are in such a bad condition,” says John Xavier, a photo studio owner from Avadi, who bought a Hyundai Santro for Rs. 35,000/- recently. “While I still drive a motorcycle, I bought the car for my wife mainly to drop and pick up my children from school which is just four kilometers away,” he says.  While sending his children by a school bus cost John Rs. 16,000/- for six months, his children now commute to school in the comfort of a car.

Used car retailers in the city point out that they get quite a few customers like John who need a second car or even a third car mainly to cater for a specific purpose. “I had a customer who bought a car for his aged parents solely for the purpose of visiting nearby temples once a month. His price range was around Rs. 50,000/- and we could identify a car that suited his needs,” says K. Manikandan, a used car retailer from Kolathur which is now turning into a hub for used cars in the city.

However, cheap cars are usually available only on online forums and newspaper advertisements as established used car dealers claim that there is not much of a margin in such sales. “Price of a used car is determined only from the price of the same vehicle when it was new. So it is not possible to say that used car prices have come down,” says K. Mahalingam, partner, at T S Mahalingam & Sons, which has been in this business for several decades now. “It is true that there are a lot of cars available in the market now and that could drive down the prices a bit. But, generally the customer’s focus still remains on quality and not the price alone,” he says. 

According to industry experts, for every 100 new cars sold in the country, there are about 120 – 130 used cars that get sold. While the ratio is about 1.2-1.3:1 in India, it is much more healthier in a more matured markets, where the ratio is 3:1 in favour of used cars.

The used car market here is trying to move towards organized sector, from being driven largely by the un-organised sector. However, the industry is still dominated by individuals and small players. For every 100 used cars sold in India, only 16 or 17 of them are sold by organized players, with the rest being accounted by individuals, consumers and brokers. Experts claim that used car market in India is growing at about 15 – 20 per cent per annum.

Rakesh Srivastava, Sr. VP Sales and marketing at Hyundai says that the manufacturer driven certified used car programs command approximately 18% market share which is growing rapidly. “Hyundai offers its organized certified used car programs like “H-promise” that provides trust, reliability, certification and warranty back up to customers. Besides, H promise offers the convenience of one stop solution to customers willing to exchange their cars for a brand new Hyundai car,” he says.

Absence of clear policy on life of cars encourages grey market

With the number of new cars that enter city roads on a steady rise and in the absence of an effective mechanism to dispose of used cars such as car crushing units, it is not uncommon to find abandoned cars in garages, vacant lands and even in street corners of suburban areas.

According to transport authorities, a total of 6,50,473 cars are presently being used in Chennai as on July 2014. But, the actual numbers could be much higher, say industry veterans.
Used car retailers in the city point out that since there is no stipulated time limit for the lifespan of a car as is the case in certain other countries, most car owners prefer to keep their vehicles for a long time after their productive lifespan merely for sentimental value.

“While there are many cars in the used vehicle market that are more than 20 years old, they usually do not find an interested buyer,” says A. Veeraraghavan, a used car dealer from Choolaimedu. “Such cars are usually bought by driving schools for teaching purposes or are converted to scrap and end up in one of the several scrap markets in the city and elsewhere,” he says.

While Ambassador and Fiat cars ruled city roads until even a few decades ago, these cars have completely vanished from the scene. Industry experts claim that the typically cars that have more than 10 years of road life might not find a buyer in the city but could still be of use in a smaller town. “Such cars would gradually move from Chennai to smaller city to a much smaller town and would eventually get abandoned. Since, we do not have any legislation that mandates the life span of a car, there is no way to find out where these vehicles end up,” says K. Mahalingam of T.S. Mahalingam and Sons.

Used car retailers feel that the government should come up with a clear policy on effective disposal of cars after they have completed their useful life. According to them, it would ensure that pollution levels are under check and such a policy can also ensure that these vehicles and their spares do not enter the grey market.

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