labels: passenger cars, automotive
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Mohini Bhatnagar
22 October 2002

Mumbai: The automobile market is, undoubtedly, upbeat - in September 2002 new car sales went up by 28 per cent.

New car sales were spurred by loan schemes and discounts from manufacturers, and almost all major automobile companies, including Hyundai, Tata Engineering and Hindustan Motors, recorded good growth. Domestic car sales increased to 50,426 units during September 2002 from 40,778 units in September 2001. The number of cars sold in India per year is around 900,000.

Another factor, aver car dealers, fuelling this sales growth is that a large number (about 35 per cent) of buyers are trading or exchanging their old cars for new ones. This led to not only increased sales of new cars but also large numbers of used cars flooding the market.

In September 2002, used car prices crashed by about 30 per cent and sales rose by 20 per cent over September 2001. Auto experts say the used car business is becoming very attractive because dealer margins on used cars are higher than on new cars. Dealer margins in the used car business are 5-6 per cent, while those for new cars are 2-2.5 per cent.

As the used car business becomes more lucrative, reputed companies like Ford Assured, Maruti True Value and Mercedes have entered the market, thus inspiring confidence among car buyers who feel that the possibility of getting cheated by well-known companies is remote. Hence, buying a used car has lost much of its perceived risk.

Most of these companies have certain quality standards, including an evaluation of cars on a 120-point checklist and a 50-point mandatory reconditioning. Maruti True Value has even more stringent norms: only cars less than four years old, having been driven up to 60,000 km and not having changed two previous owners, are accepted for purchase. Also, designated engineers are present at True Value outlets to check the cars.

According to Vinay Sanghi, CEO, Automartindia - the used car company promoted by Mahindra & Mahindra, HDFC and Sah and Sanghi - in the past six months, cars coming in for resale are newer and in better condition, leading to higher margin realisations by dealers than on brand new cars.

He feels there is a tremendous potential in the used car market in India and the current ratio for new and used cars in the country is 1:1, while in developed markets like that of Europe the ration is 1:3.

Consider Ford's slogan: 'Drive in the old and drive out Ikon.' It reflects the company's strategy of used cars driving the sale of new cars. The company wants to increase the car-owning population by encouraging those who can't afford a new car to buy reconditioned second-hand ones, even as existing owners graduate to newer ones.

For consumers it is a win-win situation. The price is right, they get a certified vehicle with a warranty, and depreciation on a second-hand car is five years as compared to three years for a new vehicle.

Good customer response has resulted in Ford Assured planning to expand the service from Bangalore, Chennai, Coimbatore, Ludhiana, Baroda and Pune to Kolkata, Mumbai, Chandigarh, Kochi and Ghaziabad.

Tata Engineering also plans to enter the used cars business with the Indica extremely strong in the south. The company will use its 91-strong dealer network to do the business.

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