Now's the best time to pick up a Merc—prices in the used-cars market have never been so low
A Toyota Corolla for Rs 2.5 lakh, a Honda Accord for Rs 2.8 lakh, and—don't blink—a Mercedes for Rs 4 lakh? Rajiv Ahuja thought his friend was joking when he offered to get him his dream beauty at those ridiculously low prices. But last month, he became the proud owner of a 10-year-old Toyota Corolla. "She's cool, comfortable and cruises like a dream," says Ahuja of his new buy. Of course, the Rs 2.5 lakh price tag helped.
All of you who have been looking to buy fancy cars or functional cars but found them too heavy on your pocket, now's the time to act. "Used cars are going the price of old televisions and refrigerators and I see the time coming when you'd actually have to pay a price to get rid of your old crock," predicts auto consultant Murad Ali Baig.
The price drop is sharp across all models and makes. A two-year-old Esteem sells for between Rs 260,000 to Rs 280,000, a Cielo for Rs 325,000. For older and bigger cars like the Premier 118 NE and the Contessa, the drop in prices has been the sharpest. A five-year-old Premier 118 NE, fitted with an AC and a music system, can be yours for Rs 50,000 and the Contessa of similar vintage for Rs 1 lakh. These two cars are most sharply hit by the falling market. Possibly because they are perceived as fuel-guzzlers and high-maintenance vehicles.
But even the Maruti 800, which was a self-selling proposition even in the used car segment, is now under pressure. "For the first time since 1985, Marutis have to wait for buyers. A Maruti which sold for Rs 1.6 lakh only six months ago is today selling for Rs 1.25 lakh," says Harjit Singh of Delhi's Guru Nanak Motors. The state of Fiats and Ambassadors, being the oldest available in the market, is even worse. Some of these, of the early '80s vintage, are selling in the range of Rs 15,000-Rs 20,000. That's the price of a colour TV set!
It's party time for bargain hunters. "The time is ripe for those who are looking to kick their scooters and enter the car market. This is usually the profile of the buyers of used cars. This buyer emerges in the parallel market when the first-hand market shifts from being a sellers' market to a buyers' market which happened in India only in 1993," opines Dr Shripad Bhatt, assistant director, Association of Automobile Manufacturers.
The used car market is then beginning to flower out as a direct consequence of the over-supply in the original car market. Till 1993, the market was protected. The Premier Automobiles, the Hindustan Motors and the Maruti Udyogs produced the numbers they fancied, dictated their terms and controlled the demand. Then came the 1000 ccs, Esteems, Cielos, Ford Escorts, Fiat Unos, Peugeots and Opel Astras. In the last four years, some 12 lakh cars have inundated the market, four lakh passenger cars coming in the last year alone. Add to this utility vehicles like the Sumos and the Omnis, 60 per cent of which are bought for personal use, and the market is in overdrive.
THIS single fact has changed the whole complexion of the car market. First, the premium disappeared from the Maruti as did the booking time. Then began the mad scramble for ensnaring the customer. "Today the customer is truly the king," says Bhatt. Sample the goodies he gets:
Finance schemes: Till yesterday the effective rate of interest offered by car finance companies was as high as 25-26 per cent and most would finance only about 75 per cent of the car. "The attitude was we are doing you a favour by giving you money," says Deep Malhotra, an executive with a private firm. Today car finance companies are rolling out the red carpet for the customers. Make a down payment of only about Rs 15,000 and walk away with a Rs 8 lakh Opel Astra. Many financiers will even send the papers home for you to complete the formalities and the effective rate of interest is down to 17-18 per cent. Getting a car loan has never been easier or cheaper. "I might not have Rs 100,000 to buy a used Contessa but I have Rs 400,000 to buy a Zen. God bless the financier," says Sanjiv Gupta who is sitting at DD Motors to drive home his Zen. That's the reason he says he let go a Contessa in 'superb condition', fitted with an air-conditioner and a stereo, that was being offered to him at Rs 90,000 last month.
Special company schemes: Most premium car companies are also now offering special schemes wherein the sticker price remains the same but through tie-ups with finance companies cars are available at zero rate of interest. These are nothing but disguised discounts or price cuts by car companies. Customers are buying these with glee. Besides, there are exchange offers too. Cielo recently offered a trade-in scheme. The side-effect of this is the creation of a replacement market.
Dealer discounts: "I know of customers who have wrangled up to Rs 100,000 discount from dealers of premium category cars," says Baig. The dealers, however, are not complaining. They have plum incentives like a vacation to the US and other such lollies being offered to them by car companies under pressure. Eager to meet the target, these dealers do not mind incurring a loss on their commission. The customer is not complaining either.
Given this scenario, anyone wanting to go in for a second-hand car for financial reasons doesn't require much persuasion to go in for a new one. This means less buyers for used cars. Besides, hire-purchase schemes also impact the supply side of the used market. Today about 70 per cent off-take of new cars is through hire-purchase schemes. Even if the delinquency rate of these schemes is only 1 per cent, given that 4 lakh cars were sold last year and 3.45 lakh the previous year, some 50,000 second-hand cars would have been added to the used cars market through this route.
Besides, there is the socio-psychological dimension to the purchase decision."Today a car is not just a set of wheels. The person who drives an Opel or an old-model Fiat is at once making a personality statement," says Baig. Hence, people are replacing cars faster than they would do yesterday. Says Bhatt: "Yesterday, the car was seen as a life-long asset. Once you bought a car, it would stay for life. Today it has an expiry date." Most companies anyway discard their cars after five years, which is when its book value becomes zero.
For sellers of cars this means a situation of over-supply. For buyers, however, it is the perfect opportunity to strike a good deal. "Two years back I wouldn't dream of picking up a Toyota. Today I have bought a super premium-car at one-third the price of one. Besides, it gives me a mileage of 10 km per litre which many new premium cars would not," says a beaming Ahuja. "I have saved Rs 3 lakh by buying a Contessa for Rs 1 lakh. You must not forget that more second hand cars also mean better second-hand cars. Used cars are no longer rust buckets," reasons another smart buyer. More and more people, like him, are smelling the smart opportunity.