SUV craze drives up used car market

If you are looking to buy a second-hand Innova, Creta, Brezza, Scorpio, XUV 500, Nexon or any other popular SUV, chances are that you may have to fork out up to 10% more than what you would have paid a year ago and, worse, you may have to settle for something that’s not in your consideration set.

High demand for popular utility vehicles has created a severe demand-supply mismatch in the used car market, raising the average selling price (ASP) as well as margins of organised players, industry executives said.

In India, for every two new cars, three second hand cars are sold.

Typically, used car platforms and resellers earn a gross margin of 7% compared to 4.5-5% of their new car counterparts.

However, with demand for popular SUVs exceeding supply, used car retailers have increased their average margins on such vehicles by up to 300 basis points in one year, industry insiders said. One basis point is 0.01 percentage point.

“The demand of SUVs has jumped up significantly in the last few years and, therefore, there’s bound to be a shortage of SUVs in the used car market,” said Shashank Srivastava, senior executive officer at Maruti Suzuki India.

“Typically, a new vehicle owner retains the model for 7.3 years before selling it off. Hence, the models come into the market with a lag,” he explained. “This means that the current pool of used cars availability reflects the new car segment construct of a few years back.”

Maruti True Value, the country’s largest retailer of used cars by volumes, said SUVs accounted for 8% of the 260,000 used cars it sold between April and October. The SUV share stood at 7% in the year-ago period.

Other industry insiders corroborated the trend of rising SUV demand.

“Majority of the buyers are asking for SUVs and there aren’t enough used ones in the market,” said Ashutosh Pandey, MD and CEO of Mahindra First Choice Wheels (MFCW).

The multi-brand used car business of Mahindra Group is struggling to meet demand. The supply demand mismatch at the firm has widened to 22% from 20% in the year-to-date from the year ago period.

Spinny, a full stack platform for used cars, said its average monthly sales has increased to 7,500 cars this calendar year from 4,500 in 2022.

“The demand – particularly for the SUVs – is insanely strong,” said Neeraj Singh, cofounder of Spinny. He expects the used car market to end 2023 with a 13% growth year on year.

The jump in used car demand is in tandem with that for new cars, which has been on the rise for two-and-half years with October recording the highest-yet monthly volume for passenger vehicles at 391,472 units, rising 16.3% on year, according to Society of Indian Automobile Manufacturers (SIAM).

One reason for the rise in average selling price of used cars is that the sharp increase in new car prices by up to 40-60% in the last two years (depending on the model and the trim levels) has inflated the expectations of used car sellers, Singh said.

The ASP at the Tiger Global-backed Spinny has jumped to ‘6 lakh from ‘4.6 lakh two years ago.