42 pct of used car consumers buy/sell via informal channels and percentage likely to soar if GST rates are increased to 18 pct

December 24, 2024, New Delhi: The latest proposal of the GST Council to raise the Goods and Services Tax (GST) rate on the sale of old and used vehicles from 12% to 18% is expected to adversely impact the growth of trade through formal and online channels as the revised rate applies to vehicles sold with a margin and purchased by businesses claiming depreciation. On the other hand, individuals selling or buying old vehicles will continue to be taxed at the lower 12% rate.

India’s used car market has grown considerably over the years as an increasing number of people prefer individual mobility. Moreover, with the entry of technology startups entering the fray with varied financing, the Indian used car organised market, which $32.44 billion, is expected to more than double to $73 billion by FY28, according to the Indian Blue Book report by car&bike and Das WeltAuto. The demand for pre-owned luxury cars has been rising at around 35-40% on a year-on-year (Y-o-Y) basis as owners of luxury cars usually sell off their vehicles after a year or two and upgrade to better models, states Mordor Intelligence.

Initially, the market for pre-owned luxury vehicles attracted traction only in metro cities. However, local dealers and online players have expanded the market. Currently, interested customers spanning tier-1 and tier-2 cities can also enquire and purchase these vehicles. Used luxury car dealer Big Boy Toyz states that more than 33% of buying inquiries for used luxury vehicles come from sectors other than the home city.

Given the massive growth of the used car market in India, LocalCircles via its latest survey has attempted to understand the consumer preference in buying or selling a used vehicle (single use) in the last 2 years. The survey received over 23,000 responses from consumers who bought or sold a used car (single use) and are located in 288 districts of India. 65% respondents were men while 35% respondents were women. 45% respondents were from tier 1, 23% from tier 2 and 32% respondents were from tier 3, 4, 5 and rural districts.

Among those who buy or sell used vehicle in India, 7 in 10 currently do not use any online channel; 3 in 10 buy or sell within their close social network

The first question in the survey asked consumers, “When you have had to buy or sell a used vehicle in the last 2 years, how did you find the buyer or seller?” This question in the survey received 12,526 responses. 25% of respondents said they “Did a trade-in at a dealership and bought a new vehicle”; 32% “Found buyer/seller through social network (family, friends, neighbours, colleagues); 13% “Did it through a used automobile dealership”; 10% “Did it through online classified website”; and 20% “Did it through online marketplace to buy/sell vehicle”. On an aggregate basis, 7 in 10 currently do not use any channel to buy or sell used vehicles in India while 3 in 10 prefer to buy or sell within their close social network. Also, only 2 in 10 surveyed used online marketplaces like Cars 24, Spinny, Droom, etc., and only 1 in 10 used online classified websites like OLX auto and several other automobile classified websites that exist.

Consumers who bought or sold a used vehicle and stayed away from using online marketplaces or used auto dealerships due to lack of trust

The next question in the survey asked consumers, “When you have had to buy or sell a used vehicle in the last 2 years, what were all the reasons that you did not consider online marketplaces that exist for buying/selling vehicles?” This question in the survey received 11,054 responses. 27% said they “Don’t trust online marketplace when it comes to high value transactions like a vehicle”; 17% said “Did a trade-in for a new vehicle or have a dealer we trust and hence didn’t have the need to look elsewhere”; 13% “Found buyer/seller through my close social network (family, friends, neighbours, colleagues) so didn’t have a need to look elsewhere”; 5% “did not want the transaction to be taxable”; and 3% cited “Other reasons” while. 5% did not have an opinion. The findings indicate that consumers who bought or sold a used vehicle and stayed away from using online marketplaces did so because of lack of trust, preference to buy/sell in their social network or doing a trade-in with dealerships.

In summary, the findings of the LocalCircles survey indicate when it comes to buying or selling a used vehicle (single use), 7 in 10 consumers who had a need did not use any online channel to do so while 3 in 10 bought or sold within their close social network. Moreover, Indians rely on social networks, trade-ins, etc., and only a handful of them currently trust online marketplaces. This means the online market players need to make the consumers more aware and more importantly earn their trust. However, even as the online market players strive to attract more car owners to buy and sell through their platform, move of the GST Council to raise the GST on used cars from 12% to 18% is expected to act as a deterrent. With higher GST, it is likely that more transactions will move towards the informal channels.

Survey Demographics

The survey received over 23,000 responses from consumers who bought or sold a used car (single use) and are located in 288 districts of India. 65% respondents were men while 35% respondents were women. 45% respondents were from tier 1, 23% from tier 2 and 32% respondents were from tier 3, 4, 5 and rural districts. The survey was conducted via LocalCircles platform, and all participants were validated citizens who had to be registered with LocalCircles to participate in this survey.