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According to a survey conducted by LocalCircles, over 23,000 responses were gathered from consumers who bought or sold a used vehicle in the past two years, covering 288 districts across India.
The survey highlights the dominant role of informal channels, with nearly 42% of used car transactions occurring outside formal platforms. This percentage is expected to rise further if the GST rate increase comes into effect.
The GST proposal is aimed at used cars sold with a margin or those purchased by businesses claiming depreciation. However, individuals buying or selling used cars will still be taxed at the lower 12% rate, potentially incentivising more transactions through informal networks. This could prove detrimental to the growing formal and online used car markets, which have seen a surge in recent years.
India’s used car market has grown significantly, driven by increasing consumer preference for individual mobility and the rise of technology startups offering financing options. The market, valued at $32.44 billion, is expected to more than double to $73 billion by FY28, according to the Indian Blue Book report by car&bike and Das WeltAuto. The demand for pre-owned luxury cars, in particular, has risen by 35-40% year-on-year, with owners upgrading to newer models after just a year or two of use.
The entry of online platforms and local dealers into the used car market has expanded its reach beyond metro cities, attracting interest from Tier-1 and Tier-2 cities as well. Big Boy Toyz, a used luxury car dealer, reports that more than 33% of inquiries for used luxury vehicles now come from regions outside their home cities.
However, despite the market’s growth, the LocalCircles survey reveals a preference for offline transactions. When asked how they found a buyer or seller in the last two years, 25% of respondents said they traded in their vehicle at a dealership when purchasing a new car, while 32% relied on their social networks (family, friends, colleagues). Just 13% used used car dealerships, 10% turned to online classified websites, and 20% used online marketplaces. This indicates a clear reliance on personal connections and offline methods, with 7 in 10 consumers avoiding online platforms altogether.
A significant portion of respondents cited distrust as a reason for avoiding online marketplaces. In response to the question, “What were the reasons you did not consider online marketplaces?”, 27% of respondents mentioned a lack of trust when it comes to high-value transactions like cars. Other reasons included preference for trade-ins at trusted dealerships (17%), using social networks to find buyers/sellers (13%), and a desire to avoid taxable transactions (5%).
The findings suggest that while the online used car market has seen some success, it still faces significant hurdles in earning the trust of consumers. As more consumers prefer to conduct transactions within their social circles or through traditional dealerships, online platforms will need to build consumer confidence to increase their share of the market.
The proposed GST rate hike could exacerbate these challenges, pushing even more used car transactions into informal channels. This is likely to hinder the growth of online and formal markets, undermining efforts by technology startups and dealers to expand their reach.
Survey Demographics The LocalCircles survey received over 23,000 responses from consumers across 288 districts of India. 65% of respondents were male, while 35% were female. The respondents were spread across Tier-1 (45%), Tier-2 (23%), and rural districts (32%).
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