Lucknow's used car market in trouble

Even as the passenger car segment posted robust results in the last financial year, the once-flourishing second-hand car market of Lucknow is going through a rough patch.

While some players say that easy financing for new cars is a major hiccup for the second-hand car market, others site the 4-per cent value-added tax (VAT) on used cars as a big reason for the slowdown. VAT was introduced in Uttar Pradesh on January 1 this year.

It has to be taken into account that the interest rate for financing new cars is 11.26 per cent whereas for the old ones it is as high as 16.5 per cent.  Talking to Business Standard, a car dealer said: "The ratio of new to pre-owned cars was at one time recorded to be 1:1, but that has changed drastically over the past few months, especially since the introduction of value-added tax (VAT) in the state."

Expressing a similar view, Mansoor of Yash Car Bazaar Private Ltd said: "Our business has been hampered in a major way because most banks provide easy finance to buy new cars. If a person can own a new car at an initial payment of Rs 25,000-30,000, why should he be interested in a second-hand one?"

"The provision of easy and cheap finance for new cars as compared to old ones is responsible for this trend," a dealer said.

The second-hand car market took off in Lucknow about 25 years ago and now the popular term for this industry is "used-car industry". "A few years ago, the share of second-hand cars in total sales was a significant 25-30 per cent. It has come down to almost 10 per cent," Haroon, a dealer, said.

The market for new cars in Lucknow alone stands at about 1,000-1,500 per month. These include buyers from and around Lucknow city. "We pay 4 per cent of the total cost for each car as VAT, which we resent," the dealer added.

There are about 60 second-hand car dealers in Lucknow and small cars such as the Maruti 800, Indica, and Santro are favourites with buyers. The small-car segment accounts for about 75 per cent of second-hand car sales. Second-hand car dealers collect 2 per cent commission from both buyers and sellers for each deal.