Policy vacuum speed breaker may slow down India’s booming used car market

For many of those planning to buy a car and saving for it, things haven’t worked out very well lately. While some have faced a reduction in their earnings due to the Covid-19 pandemic, others have been informed by car dealerships about months-long long queues because of the global semiconductor chip shortage.

So what’s the option? Well, there is the booming used car market. In recent years, startups like Cars24, OLX Autos, Droom and CarTrade have brought a clear disruption in India’s second-hand vehicle market.

According to a recent report, this month…

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  The prices of used cars on platforms like Droom, Cars24 and Olx have surged 5-10% due to a surge in demand
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  There has also been a 25% surge in e-transactions on online used vehicle platforms
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  And the biggest demand has been for best-selling models like Alto, Scorpio, Santro and WagonR

According to the Indian Blue Book, used-car sales this year are likely to be at a four-year high of 4.3 million units. This increased traction for online used car platforms has meant that these startups are attracting investors.

CARS24 has raised $450 million in a Series-F funding round to double down on its growth. This is the biggest funding round for the six-year-old startup.

Last November, CARS24 had raised $200 million in a series-E funding round, which valued it at over $1 billion and made it the first unicorn in India’s auto space.

Startups like CARS24 buy cars from individual sellers, recondition them — which includes quality checks, minor or major fixes — and then make them available for sale.

India’s pre-owned car market is expected to more than double from 4 million units in FY21 to 8.2 million units by financial year 2026. In value terms, the jump could be even more — or from $17 billion to $47 billion. According to a report by JM Financial, the market may see two used cars being sold for every one new car.

But the market has been operating in a policy vacuum.

The Motor Vehicles Act has been unable to regulate the role of intermediaries.

As sales of used cars spike amid the pandemic, policy experts have suggested some changes to the Act.

The intermediary buying a used car does not get the ownership transferred until a final buyer for the car is found. That means, even as the unsold pre-owned car stays with the intermediary for some time, its ownership and related legal liabilities remains with the seller. Consumers are urging the Ministry of Road Transport and Highways to define vehicle intermediaries and give them temporary ownership of used cars, like in the UK, Singapore, Australia and New Zealand.

Organised players like Cars24, Maruti Suzuki’s True Value and Olx Autos have said that in the absence of regulations, they have drafted their own forms of contracts to keep the seller protected till the car ownership is transferred to a buyer.

This is also why someone who wants to sell their car today would prefer a player like CARS24, since these companies take care of all documentation and rely on data to come up with a fair price for vehicles.

But according to a recent report by Chase India, nearly half the used car market is unorganised, dominated by individual dealers with their own garages and limited inventory. This leaves people selling used cars vulnerable and at the mercy of Consumer Protection Courts.

The report states that…

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  The MV Act should be amended to include the definition of a ‘Motor Vehicle Intermediary’
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  Intermediaries should be allowed to temporarily register the vehicle in their name as they find a buyer for it.
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  Such a move will protect the seller from legal liabilities pertaining to their old car.
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  The Act should prohibit driving a used car that is temporarily registered with an intermediary

Organised players also realise that regulating this space would be the right thing to do for the government. Kunal Mundra, CEO, Cars24, says: “We are keen to have a consortium of used car players and engage with the government to further streamline the process of RC transfer and as a result help the customer by making this journey hassle-free.”

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