Call it the "Nano effect" but less than a month after Tata Motors displayed its competitively-priced small car at the Delhi auto show, prices in the 1.3-million used-car market crashed 15 to 30 per cent, if not more.
The Nano, due to be launched this October, will carry an on-road price of about Rs 1.3 lakh (for the base model), which is lower than the price of many used cars in the A segment (which includes the Maruti 800 and Alto, for instance).
"The price of a second-hand Maruti 800 has dropped over 30 per cent since the Nano was unveiled. To give an indication, the price of a 2002 model has dropped from Rs 1.1 lakh in December to Rs 75,000 today," said Arif Fazulbhoy, director, Fazulbhoy Motors, one of Mumbai's largest car dealers.
A 2003 Hyundai Santro that was available for Rs 2 lakh before the Nano display, is now on offer with an 18 per cent discount at Rs 1.65 lakh.
A 2003 WagonR model from Maruti Suzuki is currently sold at Rs 1.8 lakh, a discount of Rs 33,000 on its used-car price of December.
Despite this steep price drop, Fazulbhoy said it is hard to find buyers because many are postponing their purchase decisions till the Nano launch.
"With Nano's entry the three-year-old Alto has now become affordable to the buyer who was earlier looking only for a Maruti 800 used car," added Sunil Mittal, vice-president -- network and business development -- of one of Delhi's largest used-car dealers, First Choice Wheels (earlier known as Automart India).
Mittal said the price of a three-year-old Alto has dropped from Rs 1.35 lakh to Rs 1.10 lakh since the Nano went on display.
The small used-car market accounts for over 70 per cent of all used-car sales within the country. Eighty-five to 90 per cent of all car sales from the Maruti True Value outlets are small cars.
However, despite car manufacturers getting into used cars the unorganised market dominates the country's used car market.
Analysts and dealers predicted that used-car prices will only head further south once the Nano is on the roads. "The Nano will cannibalise used-car sales by exerting more downward price pressure," said Vaishali Jajoo, auto analyst in Angel Broking, who sees prices falling 10 to 20 per cent more.
Accordingly, used-car dealers are bracing themselves for a squeeze on margins.
Admits Ankit Sharma, manager -- sales -- in Delhi-based Patliputra Automart India: "With the small car contributing 70 per cent of our sales, used-car dealers might have to refocus their business on high-end cars."
Also, as a Mumbai-based dealer pointed out, "When a Nano buyer is getting a better finance deal with a monthly instalment of Rs 1,100, at a much cheaper interest rate (11 per cent), why would he go for a second-hand car, which carries an interest rate of 17 to 18 per cent?"
