Buying Cars: Used Car Or New Car, Which One Makes Economic Sense Post Pandemic?
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Used Car Or New Car, Which One Makes Economic Sense Post Pandemic?

Advisories
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Used Car Or New Car, Which One Makes Economic Sense Post Pandemic?

With the pandemic testing the limits of the abnormal and reaching all-time highs each day, it is safe to say that living with coronavirus is the new normal. That is, changing your routines to incorporate all the changes the pandemic brings with itself, being wary of public places and transport, and of course, never ever compromising on personal health & safety (masks are going to be just always present)!

Experience of Buying a New Car Post Lockdown

Apart from personal changes, the pandemic has also changed the buying patterns and tendencies of the car-buying public. In an effort to understand those, we at CARS24 did a research study trying to discern those new tendencies.

For one, the general public has, out of the fear of community spread, decided to forego all public transport for the safety of their own private vehicles like cars and two-wheelers. Many have also shown increased interest in buying cars in the next 6 months, in particular pre-owned. This increase in car buying intent is largely due to the public wishing to provide a safer method of transport for their family. However, due to the coronavirus-induced lockdown, things haven’t been easy.

The entire world has witnessed an economic slowdown as a direct result of COVID and the lockdown, and India too has felt the tremors of budget constraints. Buying a car, while it is the safest option for many, doesn’t come cheap! A new car means the big bucks, even the cheapest new car in the market costs well over 3 lakhs. That is probably the reason for most opting to buy good used cars! A good used car will be available anywhere upwards of 1 lakh while 2-3 old well maintained pre-owned cars as low as 2.5 lakhs, these cars easily satisfy both needs; that for physical safety and economic safety.

22.5% of car buyers who planned on buying a new car in 2020 are likely to switch to pre-owned vehicles, and for good measure. A higher number of people have been opting for pre-owned cars for the last few years, and the ratio of pre-owned to new car transactions has increased from 1.25 to 1.5 in the last 5 years. The annual pre-owned car transactions now stand at ~4.8 million as compared to ~3.3 million for new car transactions in FY 2019–20.

If the fundamental issues around transparent pricing & assured quality are taken care of, buying a pre-owned car is generally an economically more sound decision. The depreciation curves of almost all kinds of cars suggest significantly faster depreciation in first few years and then a drop in the rate of depreciation, in simpler words an average car depreciates ~40% of on-road price in first 3 years and only ~25% of on-road price in subsequent 3 years.

Thus, it is clear to see that used cars are gaining more traction with the general public. As the leaders of the pre-owned auto business, 60%+ of our seller traffic and 100% of buyer traffic is back to the pre-COVID numbers. In terms of the price point, the pricing brackets of the used cars are same as it was during pre-COVID so we haven’t observed any price drop as of now, which again validates that the pre-owned cars are in demand currently.

Maruti Swift

Is it a good time to buy a car?

Absolutely Yes, but how does one choose between a new car and a used car keeping the current financial uncertainty in mind.

We got you! Let’s do some basic back of the envelope math to compare the economics of buying a new car vs buying a 3-year-old pre-owned car, all of this for a period of 5 years when the car is assumed to be resold. After accounting for loan interest, resale value, cost of insurance, maintenance, mileage, other miscellaneous expenses like parking/cleaning, etc the cost/km of owning a new car for 5 years is INR 21/- vs INR 15.5/- for a 3-year-old pre-owned car. Of course, there are always other personal factors (than just the basic economics) that come into play when making this decision— being a driving enthusiast, tolerance for cab hygiene, wait time, public transport, and more recently fear of infection in shared transport.

Also, the cost of ownership for a pre-owned or used car is way lesser in comparison to a new one. This mainly due to high depreciation, higher taxes, RTO & registration fee, and expensive car insurance policies.

The cost of ownership of a new hatchback for 5 years costs about 9.60 Lakhs while a pre-owned car costs 7 lakhs or lesser. The price range of the cost of ownership increases in higher segment cars, especially luxury cars.

New Hatchback vs Pre-owned Hatchback Ownership Cost for 5 years

Note: We have assumed lower mileage, higher maintenance cost, and higher interest rate for the pre-owned car.

In times like these, safety is the need of the hour. Safety measures are taken and religiously followed, by the company to ensure the safety of all its employees, partners, and customers across the outlets. We at CARS24 are taking all the precautionary measures and following government guidelines. The company is sanitizing all the branches as per WHO guidelines, distributing masks to its customers and employees, and following social distancing across branches. The company has also asked its employees to download the Aarogya Setu app to keep themselves updated.