The used car market is slowing down and the Nano isn’t the only reason. Prices have come down as much as 30% compared to last year. Dealers attribute this to the increase in supply of used cars because of rising loan defaults and attractive discounts being offered by automakers on new vehicles.
“Prices of most used cars are down 20-30% from last year,” said Jaspal Singh, owner of the Mumbai-based used-car dealership VM Motors. “They have been dropping since last year, but the fall has been higher since January this year. We used to sell about 20 cars a month, but now we manage only 7-8.”
Ravi Narayanan, head, auto loans, ICICI Bank, attributes the fall to three factors. “First, there is a huge discount on new cars,” he said. “Second, the Nano is coming. Third, the financing of used cars has stopped completely.”
Discounts of 10-30% are available on cars with an engine capacity above 1,000cc. The category of sub-1,000cc cars will be affected once the Nano hits the roads. Car dealers say that while prices have not fallen in the Maruti product range, discounts are large on petrol cars in the Tata and Hyundai range as people prefer the diesel variants.
“Once the Nano hits the road in July, even smaller cars such as the Maruti 800 and Alto will be affected,” said Banwari Lal Sharma, who runs the portal www.carwale.com, a platform for car buyers and sellers.
Sumit Bali, CEO of Kotak Mahindra Prime, the car finance arm of Kotak Mahindra Bank, said, “It’s been a dull month for the used car segment, maybe in anticipation of the Nano or because of (excess) supply.”
Used car dealer Jaspal Singh said a leading new-generation private-sector bank, which auctioned recovered vehicles once in six months, is now holding an auction every month.
A leading car financier, who did not want to be named, admitted that “delinquencies [non-payment of EMIs on time] have increased 30-40%” vis-à-vis last year. “The default ratio, which was 4.5% earlier, has increased to about 6%”.
Loan defaults have increased, especially in the tourist car segment, a dealer told DNA. When rent-a-car agencies want to get rid of cars, they simply stop paying the EMIs, the dealer said, leaving banks no option but to recover and auction the vehicles.
Dealers can strike bargains at these auctions, said
Banwari Lal Sharma of carwale.com. “For instance, a Toyota Camry, which costs around Rs12 lakh, can be bought for as low as Rs9 lakh. The dealer might then sell it for Rs10-11 lakh.”
Banks and financiers have also become selective about financing cars, used ones in particular. “Of 10 files, at least six get rejected,” said Deepak Lakhani, assistant sales manager at Millennium Toyota. “Earlier, about 70% of used cars were financed through loans. But over the past eight months, only 25-35% have been bought on loan.”
ICICI’s Ravi said the bank has “stopped commercial operator lending as that was a vulnerable segment. We have even stopped lending in some geographies such as Uttar Pradesh, parts of Madhya Pradesh, and Haryana.”
In spite of this, used car dealers, too, have high hopes of the Nano. “Nano toh premium mey hi jayega (Nano will sell at a premium),” said Jaspal Singh.
