The pandemic sent demand for secondhand cars soaring globally, as worried consumers abandoned public transport for private cars. In India, that preference has turned several used-car platforms into unicorns – and there is every sign that sales of pre-owned vehicles will only grow in 2022.

“There is no denying that there has been a significant shift towards second-hand cars during the pandemic,” Niraj Singh, founder and CEO of Spinny, a used car retailing platform that became the latest to join India’s unicorn club in December, told Quartz. “The outbreak and subsequent strict regulations fuelled the demand.”

Singh added that “2022 is a promising year for the used car segment in India with more and more consumers understanding the benefits of having a personal vehicle”.

Spinny’s Singh is looking to “go deeper” with a major expansion into mid-size and smaller cities this year to cater to the growing market. The platform, founded in 2015, presently operates in 15 cities, including Delhi and Mumbai.

Akshay Singh, chief strategy officer at automobile e-commerce platform, Droom, another of the new unicorns, also believes that the preference for personal mobility and used cars will continue to remain strong in 2022, especially as the country faces a new wave of Covid cases.

“People will continue to avoid ride-sharing, public transportation due to the ongoing pandemic and the new omicron variant,” he said.

Used-car unicorns

In more developed markets, used car sales far outpace new sales, but until about 2019 used car sales were roughly on par with new car sales in India. The jumpstart from the pandemic means that pre-owned car sales will be double new sales within five years, according to data from market analytics firm RedSeer.

Though the desire to avoid public transportation has been the main driver of the uptick, online platforms helped the boom by bringing organisation and flexibility to what had been a highly fragmented market and enabling more transactions to happen largely online, appealing to the millennial demographic driving these sales. That spurred investor interest, taking four used-car startups to unicorn status since the pandemic began.

Cars24 India led the way, with a $200 million investment round in November 2020.

Last year, Droom raised up to $200 million in July at a valuation of $1.2 billion and is aiming for a listing in 2022. Droom was soon joined by another online marketplace for cars CarDekho, which announced a $250 million round of funding led by LeapFrog Investments. CarDekho is also planning for an IPO this year. Last month, Gurugram-based Spinny joined the club with a $283 million funding round led by ADQ and Tiger Global.

According to RedSeer, startups have also helped to find new sources of earnings in the industry, including data monetisation, subscription and rental plans, electric vehicle charging, and long-term maintenance packages. Droom has said it expects insurance and financing to be a future source of earnings, and also plans to use its platform to offer electric vehicles.

Chip shortage

New car sales dipped 13% in the financial year ended in March 2021 in comparison with the previous year, followed by one of the worst festive decades in November. Not only did the pandemic reduce demand, but so did an ongoing global chip shortage that has increased the waiting period for newer car models.

Players in the pre-owned car space believe that these struggles will work in their favour.

“The demand for used vehicles has also been boosted by supply chain issues for new vehicles where semiconductor shortage has resulted in long waiting periods for several new models,” said Singh, of Droom, who is expecting to see buyers in the country’s tier 2 and tier 3 cities turn to used cars, as well as an increased preference for “larger vehicles like SUVs”.

Additionally, inflation hovering at nearly 5% is steering customers towards used cars. “Consumer price levels are on the rise in India owing to the post-pandemic inflation effect,” said Siddharth Maurya, an investment fund manager working independently. “Pre-owned cars are relatively cheaper than new ones and hence can save money.”

“Moreover, now there is no stigma associated with preowned cars, which is further giving a positive push to the demand,” said Maurya.

According to RedSeer research, by the financial year 2025-2026, used car sales in India are expected to grow to 8.3 million units, posting double-digit growth each year.

The strong numbers are drawing more mainstream auto firms to the space. For instance, South Korean auto major Kia is expected to set up a used-car venture in India by 2022.

“If you look at the scenario today, what I understand is that the used car market is about 1.4 times the new car market and, come 2025, this is projected to be almost two times the new car market,” Hardeep Singh Brar, vice president and head of marketing and sales, Kia India said at an event last year. “So there is tremendous potential that we can see in this area.”

The swell in demand led to a supply crunch in 2021 for the most popular used car models. But industry players say this issue is already resolving itself.

“The supply crunch has moderated in 2021 compared to the post-lockdown period in 2020,” Singh of Droom, argued. “The increase in prices of used vehicles helped bring in more supply to the market, which made the supply crunch more manageable.”

This article first appeared on Quartz.