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Sale of Second Hand Cars to Pick Up as India's Automobile Sector Navigates the Impact of the Coronavirus Outbreak

May 23, 2020 11:46 AM 5 min read
Editorial

India’s automobile industry was reeling under a slowing economy, falling demand and erratic structural reforms i.e. GST, EV incentives, BS-IV sales, BS-VI roll out etc for over a year or so. Then, COVID-19 struck. The nationwide lockdown subsequently announced had a multiplier effect, significantly affecting auto manufacturers (OEMs) revenues and cash flows. Things came to a grinding halt in the month of April.

In a first, most Indian automakers, including India’s biggest car-maker Maruti, Hyundai, Toyota and Mahindra and Mahindra, drew blanks in April as factories and dealerships across the country remained shut to comply with the nationwide lockdown.

Nearly 250,000 vehicles were sold in the domestic market in April 2019.

 

number of vehicles sold in the domestic market in India

Now, while economists and industry experts expect a V-shape recovery - a sharp economic decline followed by a quick and sustained recovery - for the sector, we take a look at how the auto sector is navigating its way out of the COVID-19 crisis.

An increased focus on transparent and visible hygiene and the need for social distancing means a passenger’s mobility mindset may permanently alter. Considering people moved away from public transport in China after the SARS outbreak in 2003, a similar trend can be expected in India.

In fact, a recent survey titled Changed Gears by carandbike.com says 75% of people surveyed are willing to buy a vehicle once the lockdown is lifted.

Owing to similar reasons, shared mobility options offered by cab aggregators such as Ola and Uber are also likely to take a backseat unless they fundamentally change their mode of service delivery.

Private vehicles, in any case, emerge as the obvious choice.

 

Sale of Second Hand Cars to Pick Up as India's Automobile Sector Navigates the Impact of the Coronavirus Outbreak

 

Use and Not Throw

It is a commonly known fact that the pandemic has severely hit businesses, forcing many to resort to lay-offs or pay cuts. And during uncertain times like these, discretionary spending such as buying a new vehicle may no longer emerge as the first choice. Moreover, the new BS-VI emission norms have increased the price of new cars, thereby making used cars a lucrative buy.

Therefore, experts are increasingly anticipating enhanced demand for used or second-hand vehicles in the next 3-6 months.

Mahindra First Choice Wheels MD and CEO Ashutosh Pandey believe that the growth prospects of used cars are fairly attractive. “We are confident that the market will grow by 5-7% during FY21 and will return to 12-14% per annum growth thereafter,” he said.

Hyundai, which has over 475 “H Promise” (brand name of its pre-owned programme) outlets, plans to widen its exchange sales and certified sales programmes in the coming weeks and months.

Similarly, Volkswagen, which has 105 Das WeltAuto outlets that sell used cars, plans to tie up with more partners for purchasing us­ed vehicles. The automaker has also tripled the number of evaluators, especially of old cars, on its networks.

Another notable winner may be two-wheelers, whose lower cost again would make it an attractive option for people who cannot afford to shift away from public transport straight to four wheelers, which in the Indian scenario is a sizable segment.

 

Riding the Digital Way

The lockdown and the continuing difficulty in opening all retail outlets have prompted many big players such as Hyundai India, Maruti Suzuki, Renault India, Jaguar Land Rover India and MG Motor India to take to digital platforms to ramp up sales as well as provide their customers with various services at the convenience of their homes.

For instance, Nissan India and Jaguar Land Rover India have announced their respective new digital car booking and buying service to enhance customer experience. Likewise, MG Motor India has introduced an ‘MG Shield+’ programme offering a comprehensive umbrella of sales and service initiatives, focusing on contact-free technology and doorstep delivery of services.

 

Offers and More

Automakers have also come up with lucrative financing options to lure customers and increase demand. 

Maruti Suzuki has announced a 'Buy Now, Pay Later' offer in partnership with Cholamandalam Investment & Finance Company Limited (CIFCL). Hyundai Motor has come up with an EMI assurance plan in case of job uncertainty for its customers. Tata Motors is providing 100% finance for its customers, while carmakers like Toyota and Skoda are offering zero down payment on new vehicles.

 

Regulatory Reforms in the Indian Economy

Reforms are also being planned for the revival of the auto sector at an institutional level. 

Union Minister Nitin Gadkari has said that the Government is set to introduce a vehicle scrappage policy, under which recycling clusters may be established near ports.

The material recycled will be useful for the automobile industry as it will reduce cost of manufacturing cars, buses and trucks, increasing India's competitiveness in international markets.

The RBI too announced a cut in repo rate by 40 basis points to 4% and extended the loan repayment moratorium for another three months up to August 31st - a move which is likely to attract prospective buyers.

 

Tax exemption, subsidies, easier loans can go a long way in ensuring timely revival of the sector.

 

Tax exemption, subsidies, easier loans and car insurance policy can go a long way in ensuring timely revival of the sector. 

Now while the above may lean towards taking care of the demand end of things, auto manufacturers are also likely to face a supply problem as thousands of workers have headed back home during the lockdown.

To add to this is the heightened focus on shifting manufacturing and supply chains away from China. Components makers in India are now emphasising the need to develop a China "plus one" sourcing model, which means that components which could so far only be sourced from a specific region should also have an alternative route, thus de-risking the production process given the turbulent political and economical atmosphere. 

So...used vehicles and two wheeler surge, increasing digital customer experience, innovative financing options, and localised sourcing...who said Indian Auto is getting dormant!?

FIN.

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