Small cars rule used car market

Consumers buying vehicles in exchange for old ones in the used car market (1.1 million cars) prefer to stick to small cars in the A compact segment rather than moving up to bigger mid-sized cars.

Maruti-owned True Value, which deals with used cars of the company, says 85 to 90 per cent of its consumers exchange an old A category car with another older or newer model within the same segment. Maruti has a range of cars in the A segment, which include Maruti 800, Alto, Wagon R and Swift, among others.

Maruti 800, which sold about 85,000 cars under the True Value scheme last year, has more than 75 per cent share of the organised used car market.

"Around 85 per cent of sales under True Value are exchange-based. Out of this, only 10-15 per cent of customers go in for an upgrade from a compact car to a mid-sized car," the company sources said. The company also says this is because of the reliability that its small cars have built up the market over the years.

"People purchase used cars largely due to affordability constraints. So they generally stick to the same segment. Alternatively, they may stick to an old car — a trend often seen in large automotive markets such as the US and Germany," said Mohit Arora, senior director, JD Power Asia Pacific.

The trend is dramatically different from new cars, where upgrade to mid-sized cars is on the increase.

According to the recent JD Power Asia survey, the conventional car market has reached an upgrade level of as much as 48 per cent (compact cars to mid-sized cars).

Similarly, Hyundai Advantage, the used car business of Hyundai that was started in 2006, says that Santro and Getz, both of which are compact cars, together account for over 80 per cent of sales from Hyundai Advantage.

On the question of upgrade, a company official said, "Although it is hard to estimate it, the overall upgrade (including sold Santro to an old or new Getz) is somewhere around 50:50."

It means 50 per cent of the customers, who come with an old Santro, drive out with an upgraded Getz, which is the most popular. Some also go for bigger cars, while the rest buy a Santro again (which has run for a lesser number of years).

An executive of D D Motors, an authorised dealer of Maruti in Delhi, said, "In more than 90 per cent of the exchanges we do, there are small cars on either side. People upgrade, may be to a model that is a little expensive, but very rarely to a bigger car. We, therefore, are not very keen to buy used mid-sized cars."

Another authorised car dealer from Delhi said, "The price difference between a used mid-sized car and a used compact car is also an affordability issue apart from factors such as fuel efficiency and maintenance costs."

Arora was hopeful of the trend reversing in the future, though only to a limited extent. "All this depends on how the used car market develops in India in terms of number of players, distribution models and availability and pricing of used mid-sized and luxury cars," he added.