Demonetization expected to boost the organized segment of used car market in India

Indianbluebook releases Insights on Impact of Demonetization on the Used car market

  • Cash crunch induced by demonetization has led to consumers postponing their decision to buy – however, fundamental growth drivers of the used car market still intact, which will help in quick recovery of the business volumes
  • The used car market will see a structural change In the long term – Organized used car segment will grow to 20% from current 12%
  • Aided by the movement of the market towards organized players, used car finance penetration is expected to increase from 15% at present to 25% over the next 12 months.

IndianBlueBook (IBB), India’s most trusted vehicle pricing guide, today released a study on the “Impact of Demonetization on the Used Car Market”.

Data gathered from more than 38,000 in-market customers, throws light on the impact of demonetization on the consumer purchase cycle. It also provides insights into how the industry is expected to recover and structural shifts over the next twelve months.

Key Insights:

  • 85% of used vehicles are purchased through cash or informal borrowings
  • The cash crunch induced by demonetization has led to customers postponing their decision to buy used cars leading to a sharp decline of almost 13% in customers who were intending to complete the car purchase cycle within 30 days as compared to the period from Apr-Oct, 2016.
  • This led to over 42% drop in sales volumes in the month of November
  • North and Eastern regions of India were more severely impacted compared to the South and West.
  • Customers have postponed the decision to buy – a car purchase being somewhat discretionary, however, customers have not abandoned the decision to purchase the car they were intending to buy. With fundamental growth drivers of the used car market remaining intact, this pent up demand will get serviced when consumer purchase cycles return in the coming months.

Impact on Used Car prices:

  • The IBB index, which tracks relative pre-owned vehicle price changes on a monthly basis across India registered a sharp spike in November 2016 before collapsing by 15% in the month of December 2016.
  • In the month of December 2016, four-wheeler prices were doubly impacted by both demonetization and the impact of new models to be released in the new year.

Short term and Long term Impact:

  • The road to recovery has already started with December being at 87% of pre-demonetization sales volumes. The volumes are expected to improve further in the coming months. We should recognize that comparison to the month of Oct-2016 can be flawed considering that it wa s apeak festival month.
  • In the long term, the organized segment of the used car market will grow faster at the expense of the semi-organized or unorganized market.
  • The growth in the organized segment will see finance penetration increase from 15% at present to 25% in the next 12 months.

Link to entire report: