The introduction of the scrappage policy has significantly unlocked growth opportunities within the used commercial vehicle (CV) sector, which is increasingly becoming more organized and systematic. Accessibility to these vehicles is on the rise, spurred by the industry’s expansion into tier-2 and tier-3 cities and the growing prominence of online marketplaces.
According to Karthikeyan Srinivasan, the CEO of IndoStar Capital Finance Ltd, a company specializing in financing both new and pre-owned commercial vehicles, there is a noticeable surge in demand for medium and heavy CVs. This is accompanied by a notable increase in the popularity of light CVs, all driven by the government’s scrappage policy, which mandates that vehicles must be retired after 15 years, coupled with the escalating costs of new vehicles pushing buyers towards more economical used options.
With the equated monthly installments (EMIs) for new vehicles surpassing ₹1 lakh, the relatively lower EMIs for used vehicles are significantly boosting the demand for BS-IV models. The transition from BS-IV to BS-VI emission standards has further fueled this demand due to the substantial 25-30 percent price gap between the two standards.
First-time buyers, drawn to the affordability and cost-efficiency of used commercial vehicles, are also contributing to this growth trend. Used CVs present the benefit of transporting the same volume of goods at a lower per-tonne cost. Additionally, maintenance costs have decreased due to advancements in engineering with BS-IV vehicles.
Major commercial vehicle manufacturers are also focusing more on the used CV market through branded resale initiatives. The extended useful life of commercial vehicles has now enabled non-banking financial companies (NBFCs) to offer financing for vehicles up to 12 years old.
“Looking ahead, we expect steady growth in the used CV market, driven by the affordability of used vehicle EMIs and a substantial increase in demand for BS-IV models. We also anticipate favorable replacement demand with certain replacement sales expected,” Srinivasan noted in the company’s latest annual report.
Although the outlook for the used CV market remains optimistic for FY2025, new CV sales during the first half of the fiscal year are anticipated to remain stagnant compared to the same period in FY2024, primarily due to the impact of general elections and related factors. However, a stronger momentum in used CV sales is projected for the latter half of FY2025. Financing for used CVs is expected to continue its robust growth, supported by increased sales in this segment.
By FY2026, significant growth in the used CV market is anticipated, driven by the introduction of BS-VI vehicles. In FY2024, nearly 98 percent of the company’s total CV financing disbursements were for used vehicles, and as of June 30, 2024, the company’s total assets under management (AUM) in CV financing amounted to ₹6,323 crore.
IndoStar Capital Finance Ltd is expanding its retail operations with a specific focus on the used CV segment, particularly targeting tier-3 and tier-4 markets. On the product front, the company’s strategy is evolving from a focus on heavy CVs to a greater emphasis on used medium and small CVs, aiming to achieve more detailed business segmentation.
