India’s pre-owned car market to surge 2.5 times in value at Rs 44 trillion by FY27

The pre-owned car market in India, which has historically outpaced the new car market, is expected to grow even more over the next five years as a result of low car penetration, the move to digital, new car launches, shortening replacement cycles and a supportive regulatory environment, a report by OLX Autos in partnership with CRISIL reveals.

In FY21, Covid-19’s impact was noticeable in the used car market due to a lack of supply and nationwide lockdowns. However, the volume of the used car market reached pre-pandemic levels in FY22, and it has since expanded by nine percent. The industry will advance at a faster rate in FY23, supported by a return to almost normalcy, stronger consumer mood, an increase in mobility due to the opening of offices and a comeback in travel, and an enhanced supply of new vehicles, the report adds. 

Said Amit Kumar, CEO, OLX India. “There is a clear preference for pre-owned cars among consumers in larger towns, fuelled by an accelerated shift to digital channels — that offer higher convenience and build consumer trust. Urban markets drive the bulk of the demand for cars in India, with 37 percent of the Indian population living in urban areas by 2025, we will see a sharp rise in disposable incomes and affordability for discretionary spending on personal mobility.”

The research is based on an analysis of the pre-owned car market in India for the previous five years, from FY17 to FY22, and it charts the trends for the following five years, from FY22 to FY27.

Pre-owned car market to double over the next five years (FY22 – 27)
The pre-owned vehicle market is anticipated to double in size from 4.1 million units in FY22 to 8.2 million units in FY27, growing at a CAGR of 16 percent, extending its dominance by 1.7X over the new vehicle market, the report adds.

It’s interesting to note that throughout this time, the market for new cars is anticipated to increase strongly, with a CAGR of 9–11 percent, to reach 4.8–5 million units by FY27. In fact, the new car market will experience strong sales in FY23, supported by higher production levels, new product introductions, and ongoing growth in the UV category.

In FY22, UVs had a 49 percent market share, which was higher than the combined market shares of small cars (45 percent) and sedans (three percent). By FY22, the UV category had increased from 25 percent in FY17 to 49 percent. During the same period, large (from eight percent to three percent) and small (65 percent to 45 percent) have de-grown in annual sales.

Share of UVs to grow a phenomenal three times in the pre-owned car segment
The report further highlights that within the pre-owned car segment, UVs have increased their share from 17 percent in FY17 to 22 percent in FY22. Over the next five years, UVs will continue to experience accelerated growth of 3X, reaching a market share of 32 percent in the pre-owned car market. This segmental shift towards UVs in the pre-owned car market will further help uplift the average price of a pre-owned car, leading to a 2.5X growth in the overall value of the pre-owned car market, over the next five years, from Rs. 1.8 trillion in FY22 to Rs. 4.1 trillion in FY27, growing at a CAGR of 19 percent.
The most popular UVs in the pre-owned car segment as per OLX platform data are Hyundai CRETA, Maruti Brezza, Maruti Ertiga and Mahindra XUV500.

Share of small and large cars in the pre-owned car segments and popular brands
In terms of vehicle sizes, small cars no doubt dominate the pre-owned segment commanding 58 percent of all cars, with Maruti maintaining its dominance. The share of small cars will contract marginally by two percent to 56 percent by FY27. The most popular small cars as per OLX platform data considering the average vehicle age of five years in the pre-owned segment are Maruti Baleno, Hyundai Elite i20, Renault KWID, Maruti Suzuki Dzire and Hyundai Grand i10.

The large car or sedan pre-owned segment will see the most contraction, declining from 12 percent share in FY22 to seven percent in FY27 owing to the declining sales in the new car market, lack of new model launches and a shift in preference towards UVs. Honda City continues to be India’s favorite sedan in the pre-owned segment, the report continued.

The shift towards UVs is driving down the age of pre-owned cars and also improving the average buying price in the category
Preference for UVs, especially compact UVs is on the rise mainly in urban markets in line with the expanding share in the new car market. Share expansion of UVs is expected to continue as the recently launched compact UVs come into the pre-owned car market. Given the intermittent launches, UVs are also seeing faster replacement cycles as its customers typically tend to replace their cars sooner.

This segment shift to UVs in general will have a domino effect in terms of the age of the cars in the pre-owned segment. The availability of younger vehicles will be much larger and also preferred.

The share of cars that are in the age bracket of zero to seven years, will form nearly 58 percent of available cars in the pre-owned segment in FY27, adding tremendously to its attractiveness and preference among buyers. Thus, in FY27, the number of cars in the zero to seven age bracket would be 2.2X that of FY22.

Age of vehicle and price key criteria while buying a pre-owned car
While metro buyers prefer younger vehicles, price is the primary selection criterion in tier two and three cities.

Preference for UV and vans is relatively higher in the East region, while within cars primarily cheaper, lower compact/ basic hatchbacks priced in the Rs two to three lakh range are preferred. The average age of vehicles was also higher in the East at six to eight years, compared to other regions.

Small car/Hatchback prices typically range between Rs two and four lakh, sedans around Rs five or six lakh and UV prices were relatively higher in the seven to nine lakh range in the preowned market.

Digital platforms to grow four times by FY27 with huge headroom for further growth

Digital platforms will make massive strides, growing from three percent in FY22 to more than 12 percent in FY27, an increase of 4X. The organised market (dealers with sales showrooms and workshops) will make up 40 percent and C2C channel will be 20 percent in FY27. The unorganised market that comprises dealers without basic sales set up and workshop will shrink by half to just 25 percent by FY27.