Shortage of semiconductors and microchips that limit the production of new cars fuel the growth of the global used car market to grow at a CAGR of 9.40% through 2027.
According to the recent report by Research and Markets: Global Used Car Market Forecast & Opportunities, the global used car market was valued at $813.79 billion in the year 2021. Furthermore, the report said that the global demand for used cars is increasing as they are more cost-effective than new cars. All these reasons are expected to drive the global used car market in the upcoming five years.
The spread of the COVID-19 pandemic has affected the automotive industry in many ways. Due to COVID-19, many automotive companies have faced losses as the production capacity was halted due to decreased demand for new vehicles. To stop the spread of the pandemic, almost all the automotive factories, showrooms, and workshops were closed, resulting in a significant decline in the production and sales of new cars across the globe.
Many countries across the globe imposed lockdowns which adversely impacted the economic condition of most of the countries across Asia-Pacific and Middle-East & Africa regions. Owing to this, the lower-income buyer's preference for used cars increased further over new cars.
Research and Markets noted that people's standard of living across the globe has improved over time. As a result, many people are willing to buy a private car to fulfil their daily mobility requirements. Nowadays, more and more young people are showing interest in purchasing a second-hand car, as a used car is more cost-effective than a new car.
While buying a used car, buyers save a purchase tax compared to a new car. The price of a used car is almost 50% lower than a new car, which means that the price-performance ratio of a used car is sufficient over the new car.
The subsequent value preservation rate for the used car is acceptable, at the time of buying the used car, which has been driven for a year, its hedging rate does not fluctuate so much, which is completely acceptable. The report said that used cars are exponentially more affordable than buying a new car for all these reasons.
Used cars have less depreciation rate than new cars. The moment when the new cars are driven by the owners, the value of the new car begins to depreciate. The value of a new car can depreciate by as much as 30%, depending on the car. During a new car's second and third years, the value depreciates at a much slower rate, from 5% to 8%.
In the fourth year of a new car, the depreciation value jumps up to 15% as the warranties expire and the mileage accumulates. The used car depreciation rate is much less than the new car. Owing to the less depreciation rate in used cars, demand for used cars increased over the year in many countries of Asia-Pacific, the Middle East, and Africa, driving the global used car market.
Changing Consumer Perception
The good condition used cars are changing the mindset of buyers regarding new cars as the attractive value price offered by the used car is making people buy the used car over the new car.
When the COVID-19 pandemic started, Governments of many countries had to restrict public gatherings and reduce public transport availability. Due to less public transport availability, the demand for personal mobility increased, and used cars are an attractive option for buyers as they are much more cost-effective than a new car. In addition, the increase in nuclearisation and urbanisation are also key factors for the growth of the global used car market.
New Drivers' Delight
When newcomers buy a new car and drive it for the first time, it can be risky as they may meet with an accident. However, as they need to hone their driving skills, a used car is a good option for them as the buying cost is low compared to a new car.
Used cars have many benefits over a new car because the younger generation gets attracted toward the good condition used car. Therefore, by increasing demand for used cars among buyers, the sales of used cars are expected to increase during the forecast period, thereby driving the global used car market.
Used Cars Segmentation
The global used car market is segmented based on vehicle type, propulsion type, sales channel, end-use, region, and competition. The market is further segmented based on vehicle types such as hatchback, sedan, and SUV/MPV. Based on the propulsion type, the market is bifurcated into internal combustion engines and electric.
Under vehicle type, the sedan segment dominated the market with a total share of 35.12% in 2021 among the other vehicles. Again, the Asia-Pacific region has the largest market share, accounting for 28.95% as of 2021, the report observed.
NB: Courtesy - Research and Markets; Photo is representational.