Reuters - Used cars congest Indian roads as sales spike

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Used cars congest Indian roads as sales spike

Monday, Jun 15, 2009 7:18AM UTC

By Janaki Krishnan

MUMBAI (Reuters) - When Indian insurance executive K. Shankar shopped for a car, he was pleasantly surprised to discover he could buy a three-year-old SUV in near mint condition for just a bit more than a new hatchback.

"This SUV is ideal for me ... and if I can get it for the price of a much smaller new car then why not?" said Shankar.

Used car purchases are soaring in India, the world's second most populous country, as a host of global and local auto firms offer attractive trade-in deals to build customer loyalty and boost new car sales.

Many of these used vehicles are getting snapped up by people who have never owned cars before or families adding second or even third vehicles to their fleets.

With over one million cars being added to India's roads every year, experts worry the country's creaky infrastructure won't keep up with the volume of traffic, causing unbearable congestion and more traffic accidents in a country with already one of the world's worst road death tolls.

"Growth in vehicle ownership has reduced rush hour speeds to 5-10 km an hour in the central areas of major cities," the World Bank said in a recent report on India.

The number of vehicles on Indian roads has grown at an average pace of 10.2 percent annually over the last five years, it said, adding that 50 percent of roads were in a state of disrepair and only 30 percent of highways had two lanes or more.

PRE-OWNED CARS

Until recently, the used car market in India was dominated by neighbourhood dealers and roadside garage mechanics who controlled nearly 90 percent of the market, say industry experts.

But several global car makers such as Hyundai <005380.KS>, Ford <F.N> and General Motors <GM.N> have entered the market with pre-owned certified car programmes, causing used car sales to soar. India's largest vehicle maker, Tata Motors <TAMO.BO>, also entered the market earlier this year.

Local firms Maruti Suzuki <MRTI.BO> and top utility vehicles maker Mahindra & Mahindra's <MAHM.BO> were the first to spot an opportunity when they launched their pre-owned certified cars programmes more than five years ago.

The used car programmes allow customers to get new cars in exchange for their older ones at substantial discounts. These used cars are then refurbished and sold with warranties.

For auto firms, the exchange programmes are a way of building brand loyalty. For new car owners they are an opportunity to buy bigger cars at entry-level prices.

"We will be able to ensure customer loyalty and it will also reflect in the sale of new cars," said General Motors India's Vice President P. Balendran.

Most used car buyers are first-time owners or those buying additional cars for their spouses or their children, said Hormazd Sorabjee, auto expert and editor of Autocar India magazine.

According to industry estimates, in the last fiscal year ending March 2009, new passenger vehicle sales were about 1.5 million units while sales of used cars were about 1 million.

"If you look at the mature markets such as the U.S. and Europe, used car sales are in multiples of new car sales ... and that is the sort of trend we are seeing replicated in India," said Jayesh Jagasia, founder of VeriCAR, a company that inspects used cars for customers.

The growth in used cars might make life more convenient for many Indians, but it has the potential to grind life down to a halt in major cities where road infrastructure is not keeping up with the ballooning volume of traffic.

Car accidents are also a major concern. India's road toll is one of the worst in the world with around 100,000 people getting killed in road accidents in 2007 alone.

As business grows, an industry for used cars has also sprung up such as web sites advising customers on good car deals and rating used vehicles.

The financial crisis, in which India's growth has slowed to 6.7 percent in the fiscal year ended March from 9 percent a year earlier, has also been behind the growth in used car sales.

"Interest in used cars has increased over the last one year or more because of uncertainty prevalent in the market and unavailability of loans," said Umang Kumar, co-founder of Gaadi.com, a search website for used and new cars.

(Editing by Sugita Katyal and Megan Goldin)