Used cars — a cost-conscious investment?

Buyers will be dealing with lesser depreciation and more favourable terms for hire purchase loans and insurance rates

by NUR HANANI AZMAN/ pic by RAZAK GHAZALI

IN DIFFICULT times amid the Covid-19 pandemic, consumers are likely to see used cars as a cost-conscious investment, taking a conservative approach to spending compared to purchasing new cars.

Carsome Sdn Bhd CEO and co-founder Eric Cheng said its online used car-selling platform has seen a strong recovery in sales since it reopened for business in early May.

“This is because used-car buyers will be dealing with lesser depreciation and more favourable terms for hire purchase loans and lower insurance rates, among others.

“In anticipation of higher demand, used-car dealers are stocking up on their inventories,” Cheng told The Malaysian Reserve.

Cheng added that based on their observations in several key markets including China, the sales of used cars continue to be sustained post-lockdown, although consumers are generally in favour of opting for private car ownership.

“More people (now) prefer not to take public transport or even ride-sharing as safety measures, hence we are positive that such growth is sustainable,” Cheng said.

A Carsome Consumer Survey conducted in April 2020 showed a 76% decrease in the usage of ride-sharing services among consumers as they felt safer driving to their destinations themselves and were uncomfortable sharing vehicles with strangers.

“With the practice of the ‘new normal’, we are confident there will be more demand for personal vehicles to maintain social distancing.

“As affordability will be the main consideration, we believe that consumers will opt for used cars over new cars,” added Cheng.

The car-trading platform foresees a short-term, post-Movement Control Order (MCO) cash crunch for everyone, including used-car dealers.

Yet, it is staying positive on the growth as it sees people valuing car ownership due to safety reason while keeping an eye on budget control, thus this opens up opportunities for used car dealers in the medium to long run as demand for used cars grows.

For Carsome, its biggest challenge during the pandemic is navigating the containment measures implemented in its operating countries. The platform is present in Malaysia, Thailand, Indonesia and Singapore.

“Our inspection centres had to close and transactions could not be performed,” Cheng said. “But as more regions slowly ease lockdown measures, we have resumed operations where are allowed by local authorities.”

The company is adopting a cautious approach at its inspection centres, where various standard operating procedures are being implemented to safeguard the health of its employees and customers.

“Other than that, we have entered this economic downturn financially sound with a plan to ride out this period of uncertainty and to leverage growth opportunities,” Cheng added.

While the domestic auto industry is seen as “resilient”, it will require strong collaborative efforts from all players, including policymakers, financial institutions, warranty players and used-car dealer associations to get back on the growth track.

Data from the Malaysian Automotive Association (MAA) showed that a mere 141 vehicles were sold in April this year, down 99.4% from the 22,478 units sold in March. This was mostly due to the MCO, which came into force on March 18.

Though MAA expects sales to pick up in May, numbers will still be far lower than the traditional figure before the MCO, as showroom traffic remains slow and banks increase vigilance when approving loans.

Total industry volume in 2019 stood at 604,287 units, some 1% or 5,689 units higher than the 598,598 units sold in 2018.

“As part of the automotive industry supply chain that employs tens of thousands of employees, we hope that the national automotive policies are more inclusive to used-car industry players like ourselves, as opposed to being mostly focused on the new-car industry,” Cheng said.

To boost the used-car sector, Carsome recently launched the Carsome Dealer Alliance Support Programme worth up to RM55.5 million.

The programme facilitates sustainable development for used-car dealers by providing more value in terms of bonus rewards when they purchase inventories from Carsome, giving dealers credit lines to improve cashflow, and helping them move sales through advertising support.

Based on the platform’s April consumer survey, 70% of used-car dealers said their business was affected since the Covid-19 outbreak in December 2019, with 79% of respondents reported a decrease in income and among them, 32% had zero income.