Modi’s surgical strike on black money will drastically effect Rs 96,000 cr used-car market

Source: Business Standard, Nov 09, 2016

The country’s Rs 96,000 crore used-car market, most of which is unorganised, may see a negative impact from the government’s move to take out Rs 500 and Rs 1,000 notes out of circulation. Bulk of the transactions in the used car market gets settled in cash payments, chunk of which is believed to be black money.

The used car market at 3.3 million units a year is bigger than the new car market (3 million vehicles) and has been growing at double digit. With Tuesday’s move, many of such used car buyers may opt to buy new vehicles and also opt for financing, experts said.

“This strong structural move to correct the economy by removing imbalances of a parallel economy will bring transparency and have a lasting positive impact on the auto industry and the valuations of used car,” said Rakesh Srivastava, senior vice president (sales and marketing) at Hyundai, the country’s second largest car maker.

It is understood that when the entire used car business shifts to transparent deals, prices of these cars will go up. This could discourage people to opt for used cars and prefer new vehicles. The move also means that more and more buyers of new vehicles will opt for financing against just 75-80% now.

Tushar Kumar of Silver Arrow Automobiles, a dealer for Mercedes Benz in NCR said the organised used car business of various auto companies will gain market. Currently, only 15-20% of the used car transactions happen through organised channels like company operated used car showrooms. Experts said the used car brokers will be severely impacted as they prefer to deal in cash. Brokers account for 15-20% of transactions while rest all are customer to customer deals.

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