Cars that get better with age
The size of the pre owned or used car market in India is now estimated as the same as that of new cars at around 2 million per annum. But as the market matures further, it is this segment that is expected to grow faster than new car sales and attain a size roughly 1.5 times of new cars, as is the case in the US.
The growth of this industry has been helped in the last five years by the entry of a number of organised players like Mahindra First Choice and Carnation. Along with them, car manufacturers have also set up their own used car verticals on the lines of the hugely popular Maruti True Value. World over manufacturers do not see pre owned cars as competion to their primary new cars but as one that compliments the latter. See chart
Used cars only make cars more affordable bringing in a whole lot of consumers who otherwise cannot afford a set of four wheelers into the fold. As such, every used car owner is a prospective new car buyer. More importantly, the pre owned car business is a veritable cash cow for the dealers with lower investment required on the car and guaranteed higher returns. Even banks charge a much higher rate of interest on used cars compared to their newer offshoots.
Though many attempts have been made to channelise this stream of business, it has a mind of its own and despite the similarities with new car sales, throws up many unconventional facets. The success or failure of a car is often mirrored by the price it commands in the pre owned car market. This was well exemplified by the initial sluggishness of the Nano. It hit the used car market and was being offered at a discount barely six months after launch, against expectations that it would command a premium.
While it is true that almost every bestseller commands a high resale value in the market, the reverse is not necessarily as correct. Cases in point are the Honda Jazz, Hyundai Accent Viva and Maruti Zen.
There was a lot of expectations ahead of the launch of Honda’s first small car in India, Jazz. After all, till three years back Honda had an envious strike rate with each of its cars leaders in their segments. The Japanese carmaker however took its position a little too seriously and miscalculated that the Indian consumer would buy a Honda no matter what price he has to pay for it. A sticker price of Rs 7 lakh was enough to scare consumers away and Honda had its first unqualified failure in India.
Its poor showing however did not dent the legendary resale value that Honda cars attract in India. The City, Civic and Accord have one of the highest resale value (measured in terms of percentage depreciation or how cheap does the car get every passing year). Two years down the line, it is pretty difficult to spot a Jazz in the pre owned car market and wherever an owner is willing to part with it, the relative lack of availability of the car means it has a very sluggish depreciation rate. A two-year-old accident free Jazz that I managed to spot was on offer for Rs 5.5 lakh (barely 20% depreciation in 2 years).
Accent Viva, Maruti Zen
The Accent Viva and Maruti Zen (older one with the jellybean shape), are two cars that saw their resale value go up, when they were discontinued to be replaced by newer avatars. The Viva was of the few diesel sedans in the country at a time when diesel was not quite the rage it is today. It had a lot going for it including class leading styling, a notchback style boot which then was quite a novelty, and a fast revving superlative engine. Further it was also available in the flashy Ferrari red, which was quickly lapped up by our brothers in Punjab.
Poor quality of fuel coupled with the high price tag forced the car out of the roads earlier than one would have expected. Soon after however, as petrol prices headed northwards and diesel became more affordable, Viva started buzzing in the alleys of used car shops. It was also helped by the fact that Hyundai took quite sometime in launching its replacement and when it did, Viva’s styling was way better than Verna’s.
The erstwhile Maruti Zen also faced a similar situation. Before being phased out to be replaced by the Estilo in 2006, the car did look dated and was being pummeled by competition. The Estilo however, despite carrying the Zen badge was anything but that. It was a completely new car and even with the modern technology, the market could not quite digest its insipid styling. As the Estilo tanked, clamour for the ‘old’ Zen rose and so did its value in the used car market.
The Honda City, which is revitalised every 5 years irrespective of the need for it, always faces a similar predicament, albeit for a shorter time period. The bestseller has seen a model change twice and each time, the outgoing model car its resale value jump for the first three months of transition. So for every current City owner, 2013 (next model change) is perhaps the year to sell the car.
Customers do not buy cars looking at the resale value alone, but if one were to do that, quite a few new cars which otherwise find few takers would become hot sellers. The choice of colour for example is a big draw when somebody buys a pre owned car and a bright red, turquoise blue or passion yellow may fetch a good 10% more over other mundane silver, white and grey.
Special limited period variants also find a better bargain. Two hitherto unseen Zen variants the two door, Carbon and Steel, find remarkable demand maybe because of the high novelty factor. So too does the Wagon R primea, which attracts a higher price than a normal variant.