Explained: Why India’s used car market is growing faster than ever?

India's used car market is booming, projected to surpass 6 million units this fiscal year, driven by value-seeking buyers and digital platforms. This growth pushes the used-to-new car sales ratio to 1.4, significantly higher than five years ago.

Driven by value-seeking buyers, digital platforms, and easy financing, India's used car sales are projected to exceed 6 million units this fiscal year, as per CRISIL. This growth pushes the used-to-new car sales ratio to 1.4, up from under 1 five years ago. Used car sales are growing twice as fast as new ones.

From 2017 to 2024, used car sales grew by 5%. Last fiscal year saw an 8% rise, and this year, it's expected to hit 10%, says CRISIL. However, the sector isn't fully profitable yet, with organized players facing higher operating costs due to refurbishment, logistics, and financing.

CRISIL suggests strong revenue growth might lead to operational profitability this or next fiscal year. The credit health of organized players relies heavily on timely fundraising and expansion. The used-to-new car sales ratio rising to 1.4x from under 1.0x five years ago shows changing consumer trust and digital impact.

India's used-to-new car sales ratio lags behind mature markets like the US (2.5x), UK (4.0x), Germany (2.6x), and France (3.0x), indicating growth potential. The pandemic and semiconductor shortage delayed new car production, but used car sales remained steady. The recent rare earth metal shortage further delays new car deliveries, pushing consumers towards readily available used cars.

Organized players are expanding rapidly, but profitability remains a challenge. Customer acquisition, logistics, and refurbishment costs pressure operating margins, leading many companies to operate with thin margins or losses. However, the sector is shifting towards full-stack services like inspection, refurbishment, financing, insurance, and doorstep delivery. With tighter cost control, this shift should help reduce losses gradually.

Since FY19, organized players have raised over Rs 14,000 crore through equity. However, the focus on improving profitability and performance in the last two years has led to a selective approach to fundraising. Bank borrowings are limited due to cash burn, but recovery is possible with a clear path to profitability for private inventory-led businesses.