Thursday, September 24, 2015

Indian Used Car Industry

Prelude: It is just 8 months that Rahul is graduated from his engineering college and is working as an IT executive in a major MNC. While he wants to upgrade from his Pulsar to a 4-wheeler; he has little options to spend > Rs. 6 Lakhs on a new Swift. Instead he chooses to buy a second hand Maruti Swift within 50% of the money that he would have spent on the new model otherwise. While Rahul would have been hesitated to make a similar decision 5 years back; today the marketplace is change quite dynamically. Let us look at what has changed and the reasons for the same.

Indian Used Car Market has seen a sudden surge in sales, customer acceptance and business interests in the past half-decade. While the New Car Industry is reeling to post single digit growth, Used Car Market is consistently delivering 20-25% YoY growth. As of date, the Used Car sales have overtaken the new car sales in the sub-continent. By 2020, for every new car sold, 2 used cars would be sold in India! The trend looks like this:
The Indian used car market is currently valued at $ 15 Bn (GMV) and is expected to triple ($45 Billion) by 2020. So what is changed in the past 5 years that has revolutionized the industry? The growth has made the OEM's look seriously in terms of evolving their business model as the used car market is also defining their performance of the new car sales. Wonder How, then look into:

New Car Sales Bifurcation - 2014-15
Out of the 25 Lakhs New Cars sold - 7.5 lakh cars (30%) were purchased by those customers who had exchanged their old cars and bought a new car! And a hefty 20% (5 Lakh) of the customers traded their old cars in the organized retail outlets (say Maruti True Value / CarTrade / Quickr / Carnation etc) before their new car purchase. So what exactly is Organized or Unorganized Sector -
Unorganized - is the traditional way of selling the used car where the customer sells the car himself/herself to their friends or colleague or through the local mechanic-wala bhaiyya! But the challenges in this model is plenty and were the primary reasons where the growth of the used car industry was stunted:
           a. Lack of Ownership / Accountability for sale or purchase of the used car by either parties
           b. No standard way to quote the used car. The buyer would want to extract lowest price whereas the seller would want the highest price for the car. Price Rationalization is a big challenge. (Scenario is similar where the supermarkets offer standard price v/s price negotiations at local mom-n-pop store)
           c. Transparency remains the biggest concern as many a times brokers/buyers are not genuine
           d. No defined margin on the used cars which means while buying you can shell out much higher than the actual value of the used car!
           e. For buyers from unorganized sector, the condition of the car remains doubtful - Which layman can assess the engine/parts life or performance of the car being purchased?
Organized - Has tried to resolve a lot of concerns raised in unorganized dealing and is defining the growth of the industry. The advantage clearly is:
            i. Transperancy in the entire deal
           ii. Professional approach in the entire transaction
          iii. Peace of mind for the buyers/sellers due to hassle free transfer of the RC and other paper works
          iv. Instant money reimbursement to the customers; unlike park and sell model of unorganized players.
           v. Detailed Inspection of the vehicle done to offer a fair value
          vi. Stringent Checklist for assessing the condition of the car and inspect technically
         vii. In some cases even offer warranties on the used car sold!
        viii. Even bankers have started easy-financing options for cars sold/purchased through organized players.
Many players have entered the organized sector and they can be categorized into:
           1. OEM's used car wing - Maruti True Value, Hyundai Promise, Honda Auto Terrace, Mahindra First Choice, Tata Motors Assured, Toyota U-trust are some examples. To highlight the way the business these wings are doing - Maruti True Value sells approximately 30,000 used cars every month! If the numbers were to considered equivalent to new car sales, True Value would emerge as the 3rd biggest car seller, overtaking Honda (which currently sells an average 18k new cars every month). Also True Value contributes significantly to the new car sales. (Astonishing fact - Maruti True Value has over 500 outlets in more than 300 Indian cities!)
          2. Organized Used Car Outlets - The best example would be Carnation which has evolved to be a pioneer in the trade. CarTrade has also ventured in physical stores to support their online business model. 
          3. Online Players: CarDekho, Gaadi, CarWale, CarTrade, etc are engaged in used car trade which enable their customers to easily buy/sell used cars using their website. Even major classified portals like Quickr & OLX have jumped in the bandwagon and are doing good business. Quickr has taken an innovative step and recently launched QuickrCars, the portals automobile vertical. The launch of QuickrCars was a high-pitch campaign and Quickr effectively roped in actors Ranveer Singh & South superstar Suriya for their TVC's. So, why such big ticket investment in this vertical by the classified portal?
Used Car Sales Bifurcation - Sourcewise
C2C, or Customer-to-Customer sales remains the highest contributor in used cars sales - Out of 32.5 used cars sold, 14 Lakh cars were sold directly between the parties. The opportunity was encashed by classified portals such as Quickr to enable both the parties meet and complete the transaction. What QuickrCars bought to the table is going to give it a strong competitive edge:
              * Maximum Sales Price: Arrive at a fair price for the listed car based on the inspection
              * No Fikar Car Inspection Reports: Is a detailed checklist in terms of technical inspection of the car (tie-up with Carnation for implementation). Users will be able to request for a thorough inspection of the vehicle's condition, including state of engine, overall performance of cars and other operations.  

With the growth of Used car industry being double then the New car industry, we still believe that it is ignored and yet lacks innovation. With more organized players foraying the segment, we expect investments to happen significantly in infrastructure and customer interaction platforms. These organized players need to lead with innovation and enhance customer trust!

5 comments:

rahul bhardwaj said...

Gaurav , like to update about Shriram Automall India Ltd where we provide complete solution under one roof for used vehicle disposals through transparent and non hassled transactions by creating a market place and aggregate buyers and sellers at our Auto malls and transact through process of bidding.We have dedicated verticals for trucks,construction equipment , tractors , cars and 2W. For more info you can visit www.samil.in , thanks Rahul Bhardwaj , National Functional Head-Used Car , Shriram Automall India Ltd.

Unknown said...

Good data to collect and thanks for sharing . Interesting to note that organised second sales volume is growing and that's good news for Auto-component organisations like us ...Gurunathan

Unknown said...

thanks for sharing i was just about to book maruti instead i go for i-20.
my friend wants to buy Audi/merc. how are the after sales , do u know.
how many do they sell in a month

Neeraj Devarajan said...

Wow. this is really informative data. Increase in Used cars purchase can be also due to the easy availability in market after the arrival of online classifieds. car dealership apps

Ravi Shaw said...

IndianBlueBook - Find new cars, compare cars, sell & buy used cars. Check Used Car Valuation. See upcoming cars in India in 2017. Check On specs, mileage. Car photo galleries along with TCO & Reviews.

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