In Short:
The used vehicle market is expected to grow significantly this year, with 10-12% growth projected for FY25. Reduced public transport investments have created opportunities for private transport, and more people are shifting from two-wheelers to four-wheelers. The used commercial vehicle sector grew over 30% recently due to limited supply from pandemic-related low new vehicle sales. Increasing vehicle prices and rural demand also support this growth.
Thriving in the Used Vehicle Market
The used vehicle market is gearing up for a strong year ahead! Industry experts are predicting a robust double-digit growth rate in FY25, driven by insights from leading vehicle financiers.
Shifts in Public Transportation Investments
Over the last five to six years, state transport undertakings have scaled back their investments in public transportation, especially in semi-urban and rural locales. In the past, these entities would introduce numerous new buses annually to bridge the gap between semi-urban and urban areas. However, as this trend has waned, it has opened the door for private transportation alternatives to step in and meet the growing demand.
Moreover, there’s a noticeable increase in vehicle ownership among semi-urban populations and middle-income families. A significant trend emerging is the transition from two-wheelers to four-wheelers, with many consumers opting for pre-owned vehicles.
Rising Prices of Used Vehicles
Umesh G Revankar, the Executive Vice-Chairman of Shriram Finance, emphasizes that prices for used vehicles have displayed impressive resilience, with anticipated growth of around 10-12% year over year. He foresees a surge in demand for used commercial and passenger vehicles as we move further into the year.
While the cycle for new vehicles that started in FY22 is still evolving, Revankar acknowledges that it may take some time before its full effects are felt in the market. Currently, the industry is experiencing a growth rate of 12-15%, with expectations of further improvements as market conditions evolve.
Karthikeyan Srinivasan, CEO of IndoStar Capital Finance, shares a similar optimistic outlook for the pre-owned vehicle segment. Several factors contribute to this positive sentiment, including a shortage of older vehicles, rising prices in the new vehicle category, and restricted financing options for first-time users.
Challenges from Limited Supply
According to Srinivasan, the used commercial vehicle market has witnessed an impressive growth of over 30% in the past two years, largely attributed to a constrained supply chain. The Covid-19 pandemic led to significantly low new vehicle sales from FY20 to FY22, intensifying challenges as the industry had to adapt to the new BS-IV standards.
IndoStar anticipates that the used commercial vehicle market will maintain its stability and continue to thrive, especially with the new scrappage policy in play, which incentivizes consumers to update their vehicles. The firm is also broadening its reach into tier-3 and tier-4 cities, concentrating on the used commercial vehicle segment. Srinivasan believes that an uptick in rural demand, fueled by favorable monsoon conditions, will significantly bolster growth in these areas.
Additionally, Cholamandalam Investment and Finance Company shares a positive forecast for the used vehicle sector for the year ahead. The company highlights that industry growth is closely tied to the rising prices of new vehicles over the years, alongside a heightened demand for replacements. Currently, used vehicles make up nearly 28% of the Murugappa Group NBFC’s portfolio.
