Adding a new four-wheeled member to a family is always a great feeling. It does not matter if that member is new or pre-worshipped but what is important is the amount of fun we have and how useful they become when the necessity arises. In the present scenario, owning a new car needs more patience than ever because of the chip shortage affecting the industry on a global scale. Because of this very reason, there is increasing demand for used cars. Here we explain how the chip shortage is benefitting the used car market.

New cars
Scarcity of new cars

India’s automakers are now facing severe supply-related issues owing to the ongoing global semiconductor chip shortage. Experts say that factors like rising input costs and commodity prices, longer waiting periods, low festive discounts, adversely impact consumer sentiment during their purchase. This has transitioned as an advantage in the used car market. More so as carmakers like Toyota, Hyundai, and Mahindra & Mahindra have already announced that their upcoming cars are going to cost more. The country’s largest carmaker Maruti Suzuki has also announced a price hike for the third time this year alone. The average waiting period for any car model is more than two months and even extends to more than a year for a few models that are in demand.

Global Chip shortage
Global Chip shortage

The Federation of Automobile Dealers Associations (FADA) said that although the booking for passenger vehicles is high, the industry is not able to fulfil that demand due to long waiting periods caused by semiconductor chip shortages. “Unlike last year when demand was a challenge, this time supply is becoming a bigger problem due to the chip shortage. The waiting period ranges from 2-3 months to as high as 12 months for certain models and variants. We are informing customers to book as early as possible because there is a high chance that they may not get deliveries on the specific dates they have in mind,” said Vinkesh Gulati, President, FADA.

Cars in the yard waiting for semiconductors to be installed
Cars in the yard waiting for semiconductors to be installed

Cars24, one of the largest players in the market, points out that there’s a big use case for used cars in India where there are 2 cars per 100 people. “It’s an affordability issue. We are allowing people to own a car,” Vikram Chopra, co-founder and CEO, Cars24.

The Gurugram-based firm boasts of a selection of 20,000 cars and is valued at $1.84 billion. Chopra said that just like the new passenger car market, he’s seeing consistent growth in demand in the used car space. “The second-hand car market is derivative of the primary market. Everything that happens in new cars impacts the used car market. It may be with some lag. For example, all the price increases that are being taken in the new car market in the last few years, that will start impacting the pre-owned car market from next year,” he said.

Chip stock issue
Chip stock issue

India’s used car market was valued at $27 billion in 2020, and it is expected to reach $50 billion by 2026, registering a CAGR of 15 per cent, according to Mordor Intelligence. The sector today is highly fragmented and unorganised as a bunch of Indian start-ups like CarDekho, Cars24, Droom, Spinny, and CarTrade, etc. are competing for the larger share of the pie.

Personal mobility
Personal mobility

After this pandemic, more people are sceptical about using public transport citing safety reasons. On the other hand, the global chip shortage has already started affecting the new car market with very long waiting periods which further fuels consumers to opt for used cars. Since the majority of the population is middle class, spending a lot less to own a car, simply makes more sense too.

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Droom founder-CEO Sandeep Aggarwal said, “We have seen used car demand shoot through the roof from April to August. In April, we did business of $130 million, which is now at $165 million. In terms of units, 7,500 used cars have now gone up to 10,000. Used car listings on our platform have increased from 900,000 in April to 1.1 million now,”.

Of course, there are a few issues in the second-hand market too as many people who already have cars and want to upgrade will keep their cars for some more time until they get their hands on the new one. But at the same time, many car owners who are in dire need of money due to the losses incurred during the pandemic and lockdowns will seek to sell their cars to recover the loss.

Semiconductor shortage
Semiconductor shortage in the Auto industry

It finally boils down to the choice of the customer who decides to take a risk with a used car that costs less and can be at their doorstep in the next minute or book a brand new car and wait for an eternity to reach the showroom itself. Either ways, the impact is real on the auto industry as a whole and every manufacturer is seeking alternatives to get around this issue.

So if you want to buy a car now, what do you think is the best choice and let us know why you feel so in the comments below.

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