Automotive Sector Focuses On Tier 2 And Tier 3 Cities Post COVID-19

Jatin Ahuja Sep 06, 2020

The global impact of coronavirus pandemic is expected to exceed the financial crisis of 2008. In many aspects, this epidemic has left industries confused as to how they should navigate the crisis to have the least possible damage. The current situation demands countries to focus more on the health and welfare system, and while they do so, other industries such as the tourism, hospitality, manufacturing, and automotive shall take the hit.

Impact on the automotive industry

Automotive industry experts believe the fiscal and monetary measures will help ease their burden. Also, a rebound is expected to happen in the sale of cars, pre-owned luxury segment, as the immediate need arises following the new social distancing norms. Car dealerships are rapidly preparing for the post-COVID-19 phase by altering their entire sales strategy. Some of them are even making changes in their compensation plans by paying sales representatives for how many cars they have sold than what value they have sold them for to reduce a lot of pressure from the floor.

Used car segment in India

The used car market is 1.3 times the size of the new vehicle segment is expected to make $25 billion by 2023. Also, according to experts, used vehicles are expected to account for ~75% of total transactions in the automotive industry in India by 2025.

Location plays a key role in this industry. While buyers from Tier-1 urban cities might be keen on making deals where they could save more, it's the aspirational buyers from the Tier-2 and -3 cities who come searching for pre-owned luxury vehicles for better returns on spending. The interest is to such an extent that half of the used car owners are from these non-metro cities.

The pre-owned vehicle segment is also expected to gain interest as the industry norms change to BS6. The rule has no restriction on selling or purchasing of used cars post the cutoff date while it still applies to older BS standards vehicles. For consumers who had postponed their purchases of buying new BS6 vehicle in 2019 will probably make choose pre-owned cares once the situation is normal. This will additionally fuel up this segment.

Automotive industry’s response to demand in Tier 2 & 3 cities

Passenger vehicles are expected to show a strong growth pattern post COVID-19 crisis as customers’ mobility preferences will shift to personal mode than taking any shared means of transport. The epidemic has had a great impact on the disposable income of the service industry, and it has squeezed their purchasing power. To deal with this, market players are now focusing on demand in Tier 2 and 3 cities and developing market strategies to promote pre-owned luxury four-wheelers.

The effect of COVID-19, alongside the new environmental guidelines, surround BS6 emission cars, will further reduce the interest in new vehicles. An expanding number of buyers will then choose to skip their plans of purchasing new vehicles and consider a pre-owned luxury car in around the same budget. Car OEMs are now concentrating on reinforcing their pre-owned vehicle business.

Since used luxury vehicles offer better value for money, car dealerships are now roping in more aspirational customers from the tier 2 and 3 cities by building smaller showrooms, having more localized marketing plans, and providing pre-approved financing schemes.

Even though the expected return of customer traffic is 60-70% compared to 2019, experts suggest more than 50% of used car buyers will come from this segment, following past trends. Even in the pre-pandemic era, used car market had high demand throughout 2019 and in the beginning of 2020. The sales for used luxury cars were up by 10% in 2019.

As a result, suppliers are now concentrating on a portfolio that has products for their new customers (tier 2 and 3 cities) and services as per the new health, hygiene, and connectivity norms. Some are even introducing:

Door-step delivery: Serviced and carefully sanitized vehicles on the doorstep to ensure a safe environment by lessening service centre footprints.

Digital sales: As customers worry about visiting showrooms, businesses move to online/digital deals and advertising practices, therefore diminishing labour and overhead expenses.

Reduced human intervention: By adapting big data across their activities, firms are now making faster decisions with minimal financial loss and increased remote support.