Pre-owned car market in India expected to grow at 19.5% CAGR till FY27: Report

Mumbai: Pre-owned car market in India, pegged at USD 23 billion in FY22, is expected to grow at a Compounded Annual Growth Rate (CAGR) of 19.5 per cent till FY27, a report said on Monday.

It also said that the demand in smaller towns is expected to grow at a 30 per cent CAGR by 2026 as compared to a 10 per cent CAGR in the top 40 cities.

The surge in growth is likely to be driven by a host of factors, including availability of certified cars; decrease in the average tenure of ownership for cars and two-wheelers due to larger disposable incomes; launch of new models within shorter time frames and buyback assurances, among others, it said.

The growth is also expected to be driven by the emergence of organised online and phygital used car platforms amid a surge in the demand for personal mobility, according to the 5th edition of the FY22 car & bike pre-owned car industry report, produced by a collaboration of the Indian Bluebook and Das WeltAuto.

Das WeltAuto is the pre-owned car business of Volkswagen India.

An estimated over 3.5 million used cars were sold in India in FY22, breaking the previous year's record while 40 million-plus cars were sold globally around the same time, as per the report.

India's used vehicle industry is currently transitioning from an unorganised setup -- where transactions happen via roadside garage mechanics, small brokers and between car owners -- to an organised system with more players entering the market, as per the report.

By FY27, India's used car market is expected to touch sales of up to eight million units, which is projected to grow at double the rate, at a CAGR of 19.5 per cent till FY27. The used car to new car ratio during the period is forecast to touch 1.9, the report stated.

"With the changed business landscape following the pandemic, there is a clear preference for used cars among consumers across the country. Used cars, which were once considered a compromise, are now making their way into the consideration set of consumers when they think about purchasing a car. There is no reason this industry cannot achieve double-digit growth for many years to come," said  Ashutosh Pandey, Managing Director and Chief Executive Officer at Mahindra First Choice.

According to the report, the used car to new car ratio stood at 1:4 in 2021-22.

"The pre-owned car market has accelerated since the pandemic. Customers are displaying considerable preference towards pre-owned cars and the gap between new cars and used car sales is reducing phenomenally," Ashish Gupta, Brand Director, Volkswagen Passenger Cars India.

As per the report, organised used car market share is expected to increase from 20 per cent in FY22 to 45 per cent in FY26, Gupta added.

The pandemic, digitalisation, rapidly changing demographics and ambitions, first-time buyers, and the availability of different financing choices are among the significant growth factors.

According to the report, car buyers in non-metros (64 per cent) are more likely to acquire a used car as their first vehicle than buyers in metros (55 per cent). Non-metro cities account for 65 per cent of used car demand and have a CAGR of 30 per cent, which is three times that of metros.

The average car age has reduced by 33 per cent from six years in FY11 to four years in FY22, it said and added that 15 per cent of used car buyers are women who are comfortable purchasing in a phygital mode.

As much as 65 per cent of the pre-owned car supply in FY22 was concentrated in metropolitan centres such as Mumbai, Delhi-NCR, Bengaluru, Chennai and Hyderabad.

Car sellers get rid of their cars after covering a distance of 70,000 kilometres on average, with an average vehicle age of about four years in FY22, compared to 4.4 years in FY21, as per the report.