What is tempting OEM's to enter the used car market

The sudden change in the Lifestyle of the middle class and increasing urbanisation, has resulted in a drastic change in the consumer behaviour. In the past where people were mostly confined to two wheelers now prefer buying a second hand four wheeler. There has been a structural shift in the used cars market from the unorganised sector (which includes road-side garage mechanics, small brokers, car owners, etc) to the organised sector, with more automobile Original Equipment Manufacturers (OEMs) entering this business. Slowly the second hand market is being transformed into an organized business.It is growing rapidly in India with the kind of response it has received from customers in past few years.

The second-hand car market today is as attractive as the market for new vehicles for the OEMs. Some of the major reasons why the used car market has grown rapidly are rising affluence of the upper class, increase in incomes and launch of new cars every year. Apart from this there are several other reasons that has boosted the expansion of the used car market in India. Easier availability of finance, attractive schemes offered by financing firms, insurance, servicing, warranty and increased awareness and information available on various website portals online.

Maruti Suzuki India sold 163,240 cars in 2010 with growth of 33% in comparison to the previous year. Due to the huge market potential OEMs cannot ignore this rapidly growing market. Maruti Suzuki, Mahindra & Mahindra and Ford India were among the early entrants into the used car business.The entry of organised players has brought in greater reliability, quality and increased choice to the customers which in turn has boosted the demand for used cars. Mercedes-Benz India has also entered the market however, the super luxury car makers such as BMW India, Audi, etc are studying this market very closely. Mercedes-Benz entered the market last year and this year they expect the sales to increase by 10-15%.

The used car market has been attracting the OEMs off late as this business will encourage the exchange of old vehicles for new ones. Further, several OEMs have entered the used car business in order to open up an alternative revenue stream. The higher margins enjoyed in the used car business, as compared to new car sales, is drawing OEMs into this business.OEMs are attracting the customer by offering certified used vehicles at competitive rates, along with finance and insurance options, warranties and service guarantees . Looking at the demand for pre-owned vehicles OEMs see a huge opportunity in this business. The entry of organized players have brought in greater reliability, quality and increased choice to the customers which in turn has boosted the demand for pre-owned vehicles. The current encouraging trend is likely to attract more companies in to this fast-growing business in future.

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