Factors Influencing the Market Value of Pre-owned Luxury Cars

By Mr. Sumit Garg, Co-founder and MD of Luxury Ride

At a time when markets across the world were disrupted due to the pandemic, India witnessed a steep surge in the demand for pre-owned luxury vehicles. The brisk emergence of digital platforms further contributed in influencing the market value of pre-owned luxury cars by easing the buying process for customers. Along with this, various other factors have been cumulatively driving the popularity of pre-owned luxury cars as well. Customers have been undergoing behavioral change which is influencing the market of pre-owned luxury cars.

Additionally, the rise of the millennial group as potential consumers, showing a great inclination to own a luxury car without disturbing their financial stability has been adding to the value of pre-owned luxury cars. Interestingly, the pre-owned luxury car market is penetrating deeper into the market by expanding beyond the metro cities and eventually targeting tier II and III cities as well. Various big players are investing aggressively to establish infrastructure and logistics to enable this expansion.

According to a survey by CRISIL, the new car market in India is expanding at a CAGR of 10% against the pre-owned car market expanding at a rate of 15%. Within this, the demand and supply of pre-owned luxury cars have registered a significant increase in the first half of 2022.

The pre-owned luxury car dealers are integrating the best possible services in their offering to assist customers to purchase the preferred luxury vehicles within their price range. Let’s have a look at some of the other factors that are escalating the value of pre-owned luxury cars.

1) Global semiconductor shortage:

Due to the impact of COVID-19, the supply of semiconductors faced challenges. The global market witnessed a significant decline in the purchase of new cars. Considering the long waiting periods which at times lasted for 6 months to 1 year coupled with price hikes, the consumers shifted their attention towards pre-owned cars for their affordability and uncompromised performance. The pre-owned luxury cars also rode this favorable wave and offered a wide range of benefits with upgraded features to cater to the demands and aspirations of customers while also addressing the issue of semiconductor shortage.

2) Proportional car manufacturing

At present, the cars produced by OEMs are directly proportional to the demand in the market. Where previously cars were produced in surplus, discounts were offered to support the sales of the car. But with a limited number being manufactured the cars were sold at their original price. As this resulted in price hikes for new cars, customers were encouraged to buy pre-owned luxury cars.

3) Shift in consumer preferences:

Consumer preferences have come out to be a major reason for influencing the market value of pre-owned luxury cars. The increase in demand has increased the sales of pre-owned luxury cars with time. Customers today are aware of the high depreciation rate of new cars which loses 30% of its value in the first year itself. As a result, buyers are preferring pre-owned cars over new cars after analyzing the value and future worth of vehicles in the market. In addition to this, the duration of car ownership has drastically decreased over the years. Previously, customers used to own a car for six to eight years, which has now significantly decreased to four years. Looking at the trend, it is estimated that in the upcoming years, the ownership period will scale down to 3.5 years. Owing to the shortening in the ownership period, pre-owned luxury cars are witnessing an increase in demand.

4) Rise in economic status:

With time, the increase in individual disposable income has opened the luxury car market for a new consumer base previously dominated by high net-worth individuals (HNIs). Today, it is common for people to harbor a desire to own a luxury car. This change in lifestyle has been an instrumental factor in driving the popularity of pre-owned luxury cars.

Previously customers already owning premium sedans like the Toyota Corolla or the Honda Civic are shifting to pre-owned luxury cars. The pre-owned luxury segment of Mahindra First Choice Wheels itself has been witnessing an increase in market share from 5% to 10% every month. Even SUV owners in the price bracket of Rs 15-20 lakh are upgrading to pre-owned luxury cars.

5) Comparatively less cost:

Buying a pre-owned luxury car saves a lot of money, as compared to the new luxury cars. The costs are always on the higher side, which declines the potential of many consumers buying luxury cars because of the high ticket size. Apart from this, organized car players provide a lot of ancillary services which helps in the smooth buying of a pre-owned luxury car. It saves people from paying the taxes which have already been paid by the first owner and the new buyer is just required to pay the transfer fees.

6) Ease in buying

The emergence of organized industry players in the segment offering end-to-end services under a single platform are winning the trust and loyalty of the customers. Where there was a time when people were highly skeptical of purchasing a pre-owned car, today consumers are flocking to these pre-owned luxury car dealers for their reliable facilities and services. It has been a major factor in driving the market value of pre-owned luxury cars.