Rising prices of new passenger vehicles and affordability concerns are expected to keep India's used-car market on a strong growth trajectory this fiscal, with sales volumes projected to grow 7%-9% and cross 7mn (million) units, according to a CRISIL Ratings report.
The report said first-time buyers, increasing digital adoption and better access to financing are driving demand, while organised players are benefiting from economies of scale and improving profitability as the market continues to formalise.
"Used-car volumes are expected to grow 7%-9% this fiscal, led by first-time buyers who account for nearly two-thirds of transactions. Rising prices of new vehicles and affordability considerations are supporting demand for used cars from buyers seeking an economical route to car ownership, while also enabling access to higher-specification vehicles at lower prices. Greater digital adoption has improved transparency, inspection standards and financing access, helping formalise a market long constrained by trust concerns," said Anuj Sethi, senior director, CRISIL Ratings.
According to the report, the organised used-car market is expected to remain in the fast lane this fiscal, with the used-to-new car sales ratio remaining above 1:1. Although organised players account for only about 26% of total used-car sales, the market continues to be dominated by unorganised transactions.
CRISIL analysed five leading used-car companies, representing nearly half of the organised market's volumes across marketplace- and inventory-led business models.
The report said the goods and services tax (GST) rationalisation undertaken in the past fiscal narrowed the price gap between new and used vehicles by only 4%-6%, allowing used cars to retain a significant affordability advantage.
Over a five-year ownership period, used hatchbacks and sedans remain about 25% cheaper than comparable new vehicles, while utility vehicles offer savings of around 20%. This enables buyers to own better-equipped vehicles at a lower overall cost, the report said.
Supply conditions are also improving, CRISIL said, adding that the average age of used cars sold has declined to about four years from more than eight years a decade ago, reflecting faster model refreshes, shorter ownership cycles and healthy new-car sales that are replenishing the market with younger, higher-quality vehicles.
Despite the recent growth, the rating agency noted that India's used-to-new car sales ratio remains well below the 2.5-to-one to 3.5-to-one ratios seen in mature markets, indicating substantial headroom for expansion.
The report attributed the gap to structural factors, such as lower leasing penetration and relatively shallow used-car financing in India compared with developed economies, where these ecosystems support faster ownership turnover and resale activity.
The report also highlighted the increasing formalisation of the sector. The organised segment's share of used-car sales has risen to about 26% this fiscal from 20%-21% in FY21-22, driven by growing consumer preference for transparent transactions, vehicle inspections and financing support.
Within the organised market, asset-light marketplace platforms account for about 85% of transactions, while inventory-led businesses account for the remaining 15%.
"Organised players are increasingly balancing growth with profitability. Marketplace players turned profitable in the past fiscal, while inventory-led players, despite the higher costs of inventory ownership, are narrowing losses through tighter cost discipline and a greater focus on sustainable growth. Reflecting this divergence, inventory-led platforms raised about ₹3,000 crore over the past two years, whereas marketplace players required no external funding. Going forward, capital raising is expected to be driven increasingly by expansion rather than funding operating losses," said Poonam Upadhyay, director, CRISIL Ratings.
The report said improving profitability is being driven by economies of scale and a stronger focus on margins. Asset-light players have already achieved profitability, while inventory-led companies are steadily reducing losses through better cost management and operational efficiencies.
According to CRISIL Ratings, the sector's long-term growth prospects remain strong, although several factors warrant close monitoring. These include the availability of quality used-car inventory, residual value volatility arising from the GST transition, increasing penetration of vehicle financing and the pace at which organised players achieve sustained profitability.
With affordability remaining a key purchase driver and digital platforms continuing to build consumer confidence, the organised used-car market is expected to strengthen its position in India's automotive ecosystem over the coming years, the report concluded.
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