The used car market is witnessing a boom ever since the pandemic hit, but is struggling to meet the demand.
Bengaluru: Demand for used cars has shot up by 22 percent as people opt for personal mobility over public transport. Used car dealers are not being able to keep up with the demand, leading to long waiting periods for these vehicles. The credit rating agency, CRISIL, projects the used car market in India to reach 70 lakh units by 2025-26.
Sagar K R., a sales consultant at Hyundai H Promise Cars, Mysore Road, said, “The price of the used car depends on the waiting period for (a) new car. New cars’ waiting period is up to 6 months, and no one wants to wait that much, so people come to buy second hand cars. Demand is much more than the supply right now.” He further added that his branch was not being able to meet the sales targets set by them due to these constraints. The biggest reason for this hike in demand is the semiconductor chip shortage globally.
CA Souvik Mohanty, a business expert, explained, “Lockdowns led to closure of factories where these chips are produced and delayed supply chains, so that led to shortage. Then the North American winter storm and now, the current situation of the Ukraine-Russia war will further affect chips. Consumer inflation is increasing so people are preferring to buy second hand cars.” He added that semiconductor production is a labour-intensive industry and a time consuming process, which is why the current production is delayed. “Even if chips are produced at pre-pandemic levels, they will first be used to fulfill the backlogs of existing orders, which is why it will take some time, maybe till 2024, for auto prices to stabilize again.”
Due to chip shortages, vehicle manufacturers are diverting the limited chips to high-end vehicles such as SUVs, which reduces the production of sedans and hatchbacks, leading to an increase in their demand, and subsequently, an increase in their prices.
Nilay Shah, a buyer of a pre-owned vehicle, said, “I recently purchased a second-hand car after waiting for about two to three months. Buying a new car was my original plan but I was getting a similar model at a lower price and it fit my budget so I just went for a second-hand car.”
According to data by Autocar India, the used car market has the potential to become double the size of the new car market. The current ratio of a new car sold to every pre-owned car sold is 1:1.5 and is projected to shoot up to 1:2.1 by 2025-26.
Experts and industry players expect the production of semiconductor chips to stabilize within a year or two, bringing stability in auto prices.