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How used car market players are beating the blues

July 13, 2019 08:30 IST

While the passenger vehicle industry is battling an extended lean period, those dealing with used cars seem gung-ho about their prospects, report Shubhomoy Sikdar and Sneha Bhattacharjee.

Photograph: Aditya Kalra/Reuters

While the passenger vehicle industry is battling an extended lean period, those dealing with used cars seem gung-ho about their prospects.

In 2018, the used segment registered a growth rate of 15 per cent, which is almost three times the 5.32 per cent growth rate registered by the new passenger car segment in the same year.

While this estimation is based on the organised players' own assessment, these are reflected in trends shared by car manufacturers as well.

In FY18-19, Maruti Suzuki's pre-owned segment True Value witnessed sales growth of around 18 per cent over FY17-18, said a company spokesperson.

The slump in the new car sales, which has carried forward to the current year, has still not cast a shadow on the former.

Far from it -- whether in terms of listing on various used car portals or the sales in the corresponding period -- says Sunny Kataria, vice-president (auto), OLX India.

So what gives?

Kataria says the used car industry did well primarily because when the economy is not doing well, users tend to scout for deals and react more favourably to "trading down".

"Also in India, cars are still aspirational products. This means those who have been planning to buy a vehicle are likely to go for one even if it is a second hand purchase."

That is where the opportunity for unboxed cars lie. They offer a handy middle ground.

Little wonder that players like OLX, that started off as a marketplace for buying and selling a range of services and goods, have turned their focus sharply on the used car market.

On their part, players like Droom, CarDekho, CarTrade and Carwale have all reported better than expected growth over the last couple of years and have stepped into the offline space with gusto.

 

For starters, Cars24 and OLX Cash My Car have set up offline stores for used cars, and are working overtime to scale up.

The whole idea is to make both buying and selling hassle-free -- so inspection, documentation and financing are part of the offering.

OLX plans to set up 150 outlets in 40 cities across India by 2021.

While OLX, which claims to be the largest omni-channel player in the country with 6 million annual listings, acts as a platform and does not involve itself in the refurbishing of the listed vehicles, almost all car manufacturers have a dedicated unit for used cars such as Maruti True Value where assessment and repairs are also carried out.

Girnar Software-owned CarDekho, which received $110 million in funding in January this year, plans to establish a network of 200 used car dealerships across the country.

At present it has more than 30 outlets in the national capital region, Bengaluru, Jaipur, Pune and Lucknow.

The lucrative and highly competitive Mumbai is next on the radar.

CarDekho, which acquired Gaadi.com in 2014, is using the latter to set up its network of offline stores under the CarDekho Gaadi Stores brand.

Most of its online technology infrastructure -- such as the vehicle evaluator, insurance and financing products -- have been integrated with the offline channel.

Cars 24 currently operates in over 200 plus properties across India in the form of retail branches, parking and offices.

Shubh Bansal, co-founder of Truebil, says while a host of players have stepped in to organise the market, the demand-supply mismatch persists.

Most buyers want a car that is four to five years old. However, sellers want to sell their vehicle when it is six to eight years old.

"To bridge the gap between demand and supply and to ensure that we procure and sell quality cars, Truebil has developed some properties such as Procurement Score and True Score. The procurement score basically tells you if it's a lucrative decision or not, gauging the price, demand and existing supply. It helps us in deciding which car we need to procure and at what price based on past transaction data, web interactions, market research, car available in stock etc."

Bansal credits AI and machine learning for being able to solve critical problems faced by prospective consumers.

The advertising and marketing investments of these players bear testimony to their optimism.

According to industry estimates, together, CarDekho, CarTrade, CarWale and Droom spent close to Rs 750 crore on advertising last year, of which a fair chunk went into the digital medium.

But is the business sustainable? Will growth fizzle out when the markets turns the corner? Most analysts feel the opportunity in the segment is immense.

A study by Mahindra First Choice Wheels and published in the third edition of the Indian Blue Book states there's been a surge in the organised and semi-organised dealerships in the pre-owned segment.

In fact, the organised dealers have gone up by 11 per cent, which is a hike of 2 per cent, while the semi-organised dealers have risen by 3 per cent to 44 per cent when compared to figures in FY16-17.

Look at the advantages the organised players are offering.

First the market was largely unorganised -- even today a mammoth 80 per cent of the market is ruled by unorganised players -- and these players stepped in too allay many of the uncertainties involved.

The unboxed car market comprises cars that are less than two-year old and have run less than 20,000 km.

As most manufacturers give a warranty of three or four years, these cars are covered by the original warranty.

"So these are usually well maintained and the original buyers sell as they want to upgrade the technology which is evolving rapidly. You have the example of MG Hector bringing in artificial intelligence and other features like voice and park assist in the car. With these advancements, the buying cycle of the customer decreases, says Amit Kaushik, country head and MD India, Urban Science. These unboxed cars are extremely relevant for the people who are looking to buy a new car because they can get an "almost new" car at a 20-25 per cent discount," says OLX's Kataria.

But challenges remain. "Being new entrants, we must work harder at standardising customer experience at dealerships, fortifying consumer trust and making financing accessible to make most of this emerging opportunity," says an insider.

Old is gold?

Why second hand makes sense

  • Better value for money as many first-time buyers or those who want to learn to drive opt for second hand cars
  • Greater transparency with the entry of organised players
  • Shorter ownership cycles for new cars
  • Enhanced information and choice through digital integration
  • Easier access to finance and insurance as used car market players are tying up with companies to offer their products maintaining lowest possible claim ratio
Shubhomoy Sikdar and Sneha Bhattacharjee in Mumbai
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