Outlook 2020: Why used car platforms are poised for explosive growth

As the previous decade comes to a close and the new one begins, the Indian market has witnessed a paradigm shift in the consumption story across every domain. A plethora of global and domestic factors come to play, be it increased globalization, rising urbanization, formalization of several industries and their segments, emphasis on startup and entrepreneurial culture, or the recent digitization drive. 

All these factors have led to a reshaping of the Indian economy, with the country’s market delivering the second best growth rate in returns, right after the US. These returns are being driven majorly by segments such as BFSI, information technology (IT), pharmaceuticals, and automobiles. 

And, within the automobile industry, the used vehicles segment has been a clear outperformer.

Among all the positive developments over the last decade, one of the most remarkable changes has been the dissociation of the stigma related with ‘used’ commodities. 

To put this into perspective, the automobile industry in India was pegged at $229 billion in 2019 and is projected to witness a 14% rise to reach approximately $262 billion in 2020. This growth will primarily be driven by increased sales in the used segment, be it the category of two-wheelers or four-wheelers. Moreover, 2019 marked a major slowdown in the economy and consequently, the automobile market. The GDP went down from 6.5% to 4.5% and this resulted in a decline of over 11% in the automobile sector, which was a 30-year low. 

However, despite such a deceleration, the used vehicle market continued to thrive and is, in fact, projected to register a CAGR of over 15.12% in the period of 2019-2024.

The used car market is currently 1.3 times the size of the new car market. Some of the key growth drivers have been increased urbanization (with urban population set to account for ~32% by 2020), rise in disposable income (~67% by 2020), and growth of millennial-led working population (~62% by 2020). 

Further, the advent and rapid adoption of digital platforms has been a boon for the segment as this has led to increased formalization as well as transparency, thereby addressing consumer inhibitions regarding the condition and history of used vehicles. Among more recent developments, the revision of the GST rate on used cars from 28% to 12-18% has also been one of the most significant growth drivers of the used automobile industry.

As the industry enters the BS-VI era, which begins from April 2020, the used car segment is expected to grow more steadily. This is because new cars are anticipated to become more expensive owing to additional technology-associated costs, resulting in a stronger value proposition of used cars. Further, the segment continues to become more organized, with key online segment players expanding both in size as well as offerings, and with OEMs entering the space as well. 

There has been an increase in financing penetration as well, and measures are underway to address high financing costs in the used vehicle market. With all these factors coming to the fore, the used automobile segment is certainly treading on an upward path in the year 2020, and the decade that follows.

It is evident that the Indian economy is undergoing key transformation at present, and the opportunities are going to outweigh the roadblocks in the near future. The country’s automobile industry is going through constant changes, and the used segment is projected to define its growth over the next decade. The used segment yet has a lot of scope for deeper penetration, and players and OEMs that understand and address the future roadblocks and opportunities proactively, will be better prepared and positioned to succeed in this complex automobile industry.

Sandeep Aggarwal

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Sandeep Aggarwal is founder and CEO of Droom. The views in this article are his own.