The slump in the new car market has had a cascading effect on the used and exchanged cars mart, too. While sales in the used car segment witnessed a drop of 15%, it's the exchange of old cars for new where sales have plummeted 60% over the last six months.

Deepak Lakhani, assistant sales manager, Millennium Toyota, said sales are down because 40% of the customers who come to exchange cars change their mind due to low valuations. "Customers come expecting high prices for their cars so they have to pay a lower amount on the new purchase. But this is not possible in the current scenario as no auto dealer is willing to give a high valuation. Last month, we could sell only 8 cars through exchange, which is massive drop compared with the same period last year," he said.

The old cars, which the company buys for a bargain, are sold through its used car division. Lakhani said that the investment the company makes by purchasing an old car in exchange for a new one is blocked till the dealer is in a position to liquidate its old car inventory. Companies already into the exchanged car space, which comprises 30% of the total cars business, are Maruti Suzuki, Toyota, Hyundai, General Motors and Honda.

Banwari Lal Sharma, assistant vice-president (product), CarWale.com, said, "The car exchange platform is the best bet for an automaker in these tough times. It can be used to boost the sales of new cars and automakers pay a lower price to buy the car for their business of used cars."

According to dealers, the small car segment is doing relatively well. While Honda, Chevrolet and Toyota are selling only 10-12 cars a month, it's Maruti Suzuki that's selling almost 75 cars a month. On the condition of anonymity, an official from Maruti True Value said, "Nearly 30% of Maruti's sales are through exchange and it is an excellent tool for promoting and selling new cars. Alto, WagonR, Swift are the all-time selling bets. It's the B segment in cars where the sales are high."

Sharma said that the pricing of Maruti works to its advantage in the exchange segment. While other cars start from Rs 10 lakh, the starting price of Maruti is as low as Rs 2.5 lakh.

Nipun Jolly, the manager of the used car/exchange division at Fortune Cars, the dealers of Tata Motors, said, "If the carmaker has new launches, it brings about movement in the exchange segment, thus boosting sales. In case of Tata Motors and Fiat, the launch of new Vista and Linea has given the desired push to the sales volume."

With auto loans tight, valuations low and the lack of lucrative deals in the exchanged cars segment, the business doesn't seem likely to gain traction anytime soon.
Neha Rishi DNA-Daily News & Analysis Source: 3D Syndication