There are no takers for pre-used  luxury petrol-driven cars

Veeresh Malik

It has reached a point where an increase in petrol prices just does not seem to make real news anymore. However, if perception is an indication, the BRT (bus rapid transit) lane in front of my house seems to have lesser car and bike traffic on it than in the past—though this may also be because of the increased number of buses and metro trains moving people around. Also, of late, more people are calling up to ask me about how they should sell their existing cars and bikes, rather than about what they should buy.

Needless to say, many of them are absolutely shocked at the low residual values they are getting; some of the amounts mentioned are shocking for me as well. For example, ‘luxury’ cars bought for about Rs16 lakh-Rs20 lakh around 8-10 years back are now getting offers of about Rs3 lakh-Rs4 lakh. One notch below, cars bought for between Rs7 lakh and Rs10 lakh about eight years back fetch—hold your breath—between Rs1 lakh and Rs2 lakh now. These are rates for privately-owned petrol versions. And prices are as indicated in the Delhi/NCR (National Capital Region) area.

Electric Vehicles: M&M Leads the Pack
Other makers will follow suit—but only over the long term

Meanwhile, what is happening to the electric battery cars which were announced over the past few years? Reva, which still has its small electric vehicle out in the market, announced its takeover by Mahindra & Mahindra (M&M) and then went quiet, while General Motors India launched its electric Spark with much fanfare but there’s no further news. On a non-committal basis, it appears as though both these manufacturers will launch their new-generation battery cars in India during 2012-13, but that is still some distance away. And we are not informed about what they will bring out.

 Of the two, M&M is well on its way to implementing a plant capacity of about 25,000-30,000 electric vehicles, with a probable foray into electric two-wheelers too. GM India appears to be playing its cards closer to its chest, though there is talk of a tie-up with a Korean company, likely to be LG. Every way, scaling up will depend on fuel prices and government policies as well as potential demand.

The thumb rule, as explained to this writer by another manufacturer who is moving ahead with plans internationally using lithium-ion polymer batteries, is that electric cars will start making commercial sense for the Indian middle class when the price of petrol crosses 20 times the price of a unit of electricity. This is assuming that duty relaxation benefits on battery imports and other benefits bring the capital cost down. In addition, electric cars assume very low residual value for the vehicle and battery, which used to be considered a problem, since owners were used to getting good values for their older ‘conventional’ cars. But this no longer seems to be the case with the way residual values for larger cars are going—now, one has to see what happens with smaller cars. The market buzz is that the recent heavy price changes for the Honda Jazz and Honda City have changed the way the dynamics of pricing of smaller cars and their residual values are headed. The legendary reliability of engines from Honda, even though they are petrol-driven, will impact other residual brand values in India.

 It is probably safer to take the initial value of the vehicle, amortise it notionally back to zero over seven-eight years at the most, and assume a ‘nil’ value at the end of that period. Anything obtained beyond that can be set off against interest cost (if bought on loan/lease) or minor profits, since it won’t help you much when buying a replacement.

Used Spare Parts: Should You Resell Bits & Pieces?
The process is tedious—and you’ll suffer a heavy loss

So, when resale prices crash, is it feasible for owners to disassemble their old vehicles and sell the bits & pieces for the hoped-for higher value they might obtain? After all, there is a view, often trotted out by many, that replacement cost of all parts put together, even if you remove the value of the metal from the body, is likely to exceed the second-hand residual value of the complete car.

 Mathematically, this may be correct; no argument here. But, in real life, you will have to go looking for a buyer who wants the exact same parts and sub-assemblies, correct for the model-year and version. Then, there will be a heavy discount for second-hand parts which can be as much as 80% off the sticker price of new ones. To give you an example, the headlamp assembly for one of the cars we own has a dealer sticker price of about Rs10,000; when it got damaged, I managed to ‘source’ an exact ‘original’ replacement for Rs2,000. Of course, I had to bargain and the deal took about two weeks to reach my target price; by that time, the seller knew I was not going to budge and that I would drive around without one until then. Scrap values may not reach European and American levels, where scrap-yards have to be paid to take old vehicles away—but they are getting close. And, with plastic rapidly replacing more and more traditional metal parts, scrap value will also head only in one direction—down.

Battery Scooters: More on the Roads
But where are the official recharge points?

Visibility of battery scooters on Delhi streets seems to be growing exponentially, especially for short-run commercial usage of the home-delivery sort, giving rise to a sneaking suspicion that more such vehicles are being sold than sales data suggest. All sorts of strange ‘no-name’ brands seem to be popping up on the horizon every other day on all sorts of configurations. The basic ones look like cycles; some have the historic ‘moped’ look while most of them continue to look like modern scooters. There are also a few three-wheeler versions where the rear has been purloined from a sturdy cargo-rickshaw and the front has been taken off an old motorcycle, with an electric motor and batteries slung under the body—this is locally called a ‘van’.

 Some of them appear to be fairly well-produced vehicles, apparently constructed using kits brought in by an assortment of routes; others, especially the three-wheelers, are as home-grown jugaad as they can be. One early morning, I spotted one such three-wheeler pelting past and stopped to ask the driver more about its operational costs. It should have been apparent. Power to recharge for many of these vehicles is ‘free’, paid for by an account which many of us recognise as ‘transmission loss’, or from fixed-cost meters installed in some parts of the city. I know a driver in our locality who plugs his battery two-wheeler into a socket at his place of work. But, all said and done, they do run ‘clean’. The jury, in my mind, is out on this—would we rather have utility vehicles running on ‘borrowed’ electricity or those spewing pollutants running on adulterated fuel? As far as employees are concerned, it needs to be said that this is a fairly valid perquisite—and even for the rest, maybe the government needs to put up free or nominal cost recharging points at public places.

 Meanwhile, the upper classes keep paying for their petrol, diesel or CNG (compressed natural gas) and the upward bound get the upper hand. Again. There is some sort of justice at play here too, it seems—if you look at the larger issue dispassionately. 

Veeresh Malik started and sold a couple of companies, is now back to his first love—writing. He is also involved actively in helping small and midsize family-run businesses re-invent themselves.