Global Semiconductor Shortage Boosting Sales Of Pre-Owned Luxury Cars

Sumit Garg Jun 23, 2022

At a time when the automobile industry has been reeling under the long-prevailing industry difficulties, the global semiconductor shortage further has compounded the perils of an already volatile market. Where a steep surge was registered in the demand for the semiconductors with India’s transition from BS4 to BS6 engines, consumers opted for more electronic-driven features in a vehicle with alacrity to reduce the emissions on the environment as per the government guidelines.

To meet the new requirements of the vehicle, semiconductors emerged as the most viable option to fulfill a wide gamut of functions ranging from facilitating the management of electric current to powering heads-up displays, driving assistance technology, sensors, mobile phones/ Bluetooth connection integration, and high-performance components in the automobiles which at the current age is being utilised more as mobility computers.

But the pandemic offered huge resistance to the market, registering a sluggish sale of the new cars. Considering the sudden disruption in operations due to Covid-19, it restricted the mobility of people, the rising demand for new cars plunged abruptly. It resulted in reduced chip orders in early 2020 followed by manufacturing companies drastically stopping or reducing their production. But to one’s surprise, the crashing situation flipped briskly with the opening up of the market where new cars recorded a skyrocketing booking in the orders. Due to this sudden increase in demand, the semiconductor faced an acute supply shortage.

This shortage was the precursor for long waiting periods of cars (especially luxury cars). The 3-4 months wait got easily converted to 6 months and even more before the customer could get the possession of the car. These long waiting periods piqued the interest of prospective customers toward purchasing pre-owned vehicles. Additionally, the desire and demand for pre-owned cars offered better resale value that proved to be beneficial for both the owners as well as the potential buyers.

Considering that India has always been importing semiconductors from other countries namely, Taiwan, China, Thailand, etc., to meet the rising demand for semiconductors, the country has been trying to set up factories for mass production of semiconductors under the ‘Make In India’ initiative. But it will take years for the plants to become fully functional and fulfill the demand of the Indian Automobile industry. Until then there will be no dearth in the need to import semiconductors.

In the meantime, the pre-owned car market seized the opportunity to make its presence starkly felt in the market. As a result, it has been outpacing the new car market and is being dubbed the "Sunrise Sector" due to the sharp increase in demand for pre-owned cars. A variety of factors like the prolonged pandemic, digital integration of trusted independent dealers, etc. have been driving the pre-owned car market. As per a recent report – the pre-owned car market is growing at a rate of 15 percent in the FY22. The cost of owning a pre-owned vehicle is also much cheaper than owning a new one, mainly because of high depreciation rates, higher taxes, RTO/registration fees, and expensive vehicle insurance policies for the new cars.

As the exorbitant expense of a luxury car made it difficult to purchase the premium vehicles, the consumers resorted to the pre-owned luxury vehicles, with easy access to financing options. This is fast pacing the organisation of the otherwise scattered market and instilling faith amongst the customers in the sector.

At first, the market for pre-owned luxury vehicles was only popular in metropolitan cities. However, independent dealers and online players have helped to expand the market. Currently, customers from both tier-1 and tier-2 cities can inquire and purchase pre-owned luxury vehicles very easily.

Demand for pre-owned luxury cars is increasing exponentially year over year, as luxury car owners typically sell their cars within a year or two and upgrade to better models. Along with the Independent dealers, more and more car manufacturers are entering the market of pre-owned cars like Maruti’s True Value, Mahindra’s First Choice, and even companies like Porsche are foraying into the pre-owned market in India.