India's Finance Minister Nirmala Sitharaman: Millennials using Ola, Uber likely behind auto slump

India's Finance Minister Nirmala Sitharaman this week said millennials opting for taxi-hailing services like Uber are a factor for the drop in vehicle sales. While the jury is still out on this, automakers face another speed bump: used cars.

"The automobile and components industry has been affected by BS-VI (Bharat Stage VI) [norms] and the mindsets of millennial, who now prefer to have Ola and Uber rather than committing to buying an automobile," Sitharaman told reporters in Chennai on September 10.

She reportedly added that millennials do not want to commit to taking an equated monthly instalment.

While the jury is still out on this, automakers face another speed bump: used cars.

The market for pre-owned cars grew from 0.8 times of new cars in 2012 to 1.2 times in the year ended March 2019, analysts led by Chirag Shah at Edelweiss Securities Ltd. wrote in a note. The spurt pushed up the annual growth rate of the segment to 11% versus 4% for new cars in the period, the analysts said.

New car sales suffered their biggest monthly decline on record in August, as deliveries fell 41% from a year earlier to 115,957 units.

"The nature of the current slowdown coupled with slowing income growth, household savings and the evolving buyer profiles are likely to rev up used car sales at the cost of new car sales," the note said.

Last seven years have seen a steady rise in the number of organized players in the used car segment, helping boost consumer trust. Pre-owned vehicles are now perceived to offer better "value-for-money" than newer models, according to the analysts.

The attractiveness for used cars improved further after the government slashed tax on pre-owned vehicles to 12%-18% from 28% depending upon the engine size. The price gap also widened after regulatory changes made new cars more expensive, the note said.

- Inputs from Bloomberg