Mumbai

Used car sales in slow lane

BHUBANESWAR, ODISHA, 10.10.13WAITING FOR OWNERSCars are lined to be sold at a used car mart on the outskirts of Bhubaneswar on Thursday.Photo: Lingaraj Panda   | Photo Credit: LINGARAJ PANDA

This is only logical: When people have no cash for essentials, it’s highly unlikely they will go in for luxury products. Ever since the government announced that Rs. 500 and Rs. 1,000 notes are no longer legal tender, the sales of used cars have taken a beating. In a market dominated by unorganised players, most used car sales are cash transactions.

Dealers say the sales have dropped by over 40 per cent as compared to the period before November 8 (when the demonetisation announcement was made) and prices have crashed over 25 per cent in the last eight days as cash buyers have simply

vanished.

“We have seen a 30 to 40 per cent drop in sales in the past few days. We expect the market to recover in a couple of weeks,” said Nagendra Palle, MD & CEO, Mahindra First Choice Wheels Ltd, a pre-owned car company with dealerships in 400 cities across India. “The impact will be felt over the next three weeks, until liquidity comes back to the market. Currently there has been a significant slowdown in consumer traction as people have deferred their discretionary spends.”

While organised players haven’t taken as much of a beating as most of their vehicles are sold on bank finance, the unorganised players, who account for 85 per cent of the market, have been hit the hardest. These are the people who deal in cash and their business has more or less ground to a halt.

A used car dealer said a customer who wanted to sell his car for Rs. 3 lakh prior to the ban, was offering it for Rs. 2.3 lakh on Monday but there were no buyers. “People are more bothered about meeting day-to-day expenses than buying a car,” the dealer said.

In the wholesale auction channels too, prices have crashed by 15 per cent to 20 per cent.

North India is the biggest market for used cars. While 15 per cent of all used cars are sold through the financing mode, the ratio is 65 per cent for new cars. The demonetisation is also expected to bring down interest rates on car loans. For used cars, the interest rate is 13 per cent to 16 per cent while for new cars it is in the range of 11 per cent to 12 per cent.

Over 3.2 million used cars are sold annually in India, which translates to 8,800 cars per day. Similarly 2.8 million new cars get registered in India a year, translating into a daily volume of 7,700 cars across the country.

New car sales have also been impacted but to a lesser extent than the used car business.

“New car dealers are in the same situation. Scheduled deliveries have gone through as there was no problem in bank financing. But new bookings have been impacted as people mostly make the initial token deposit in cash,” said Mr. Palle of Mahindra First Choice Wheels.

Abdul Majeed, partner and national automotive leader at consulting firm PwC said new car sales will gain momentum only after December when the whole currency withdrawal exercise would be over.

“The impact on the ban is across the board including heavy commercial vehicles and it is already being felt. Sale of SUVs, luxury cars and even small cars have been hit. The impact will continue for two to three months,” Mr. Majeed said.

According to analysts, most sports utility vehicles and luxury cars are purchased in cash by rich farmers and businessmen and this has stopped for the moment. Those who can afford the vehicles have also deferred their decision.

“India is a cash economy and sudden withdrawal of high-value currency is bound to have its impact. Besides, the confusion in goods and services tax rates has forced many

people to defer their purchase decision,” Mr. Majeed said.

The ban on high-value notes would have a moderate adverse impact on domestic two-wheeler sales volumes in the near term, rating agency ICRA said.

“While the prevalence of the usage of unaccounted-for cash for purchases of two-wheelers is not as high as in certain other sectors, the temporary liquidity issue is likely to affect the demand for the segment of two-wheelers which are cash-purchase driven,” ICRA said.

Rural markets account for 60 to 65 per cent of the entry-segment motorcycles (priced from around Rs. 40,000 to Rs. 60,000) sales and given the penchant for cash purchases in these markets, the segment is expected to take a hit.

Similarly, the 500cc super-premium segment is also likely to witness some volume pressure given the relatively high prevalence of unaccounted cash in purchases.

However, ICRA believes the adverse impact is likely to be a short-term one.

Subrata Ray, Senior Group Vice President, ICRA said, “The government’s move could negatively impact demand in the short term for entry-level motorcycles that have a sizeable rural customer base.”

Additionally, with restrictions on cash availability and farmers’ priorities of deploying it for sowing requirements of the winter crop besides servicing other obligations, the demand for two-wheelers may be postponed, he said.



What they say

The impact will be felt over the next three weeks, till the time liquidity comes back to the market. There has been a significant slowdown in consumer traction as people have deferred their discretionary spends



-- Nagi Palle, MD & CEO, Mahindra First Choice Wheels Ltd



India is a cash economy and sudden withdrawal of high-value currency is bound to have its impact. Besides, the confusion in goods and services tax rates has forced many people to defer their purchase decision



-- Abdul Majeed, partner and national automotive leader at consulting firm PwC



The government’s move could negatively impact demand in the short term for entry-level motorcycles that have a sizeable rural customer base.



-- Subrata Ray, Senior Group Vice President, ICRA

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Printable version | Nov 28, 2020 11:00:05 PM | https://www.thehindu.com/news/cities/mumbai/Used-car-sales-in-slow-lane/article16667456.ece

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