By Ashim Sharma
In line with our ‘Nine Game Changers for Indian Automotive Industry in the next decade’, the ‘Used Car Market’ is a key enabler of growth. The pre-owned car market in India has been growing at 9% between FY 15 and FY 21. It is expected to grow by 15%-20% in FY 22. Several factors like the decrease in ownership cycle of new car buyers on account of increasing disposable income, the availability of new models and better options in the Indian market, the propensity to upgrade to the next segment by paying less than for a new car in the segment have led to this growth over the years.
The OEM-induced exchange and buy-back schemes have also catalyzed the growth of this market apart from markets such as NCR also being influenced by the NGT mandated useful life regulations of 10 years for Diesel and 15 years for Petrol vehicles. The convenience of buying a pre-owned vehicle due to digital interventions as well as the availability of finance and extended warranties have also accelerated the growth of the market. In recent times, the shift towards personal mobility on account of infection fears in the pandemic have brought about a spurt in this segment of the market.
The market was dominated by individual dealers buying and selling vehicles along with customer-to-customer transactions (including through online lead generators/classifieds such as Quikr and OLX), which together constitute the unorganized segment.
However, over the years the organized segment in the form of players such as Maruti True Value, Mahindra First Choice and others came in. Alongside them we have had online marketplaces like Cartrade, Cars24, and Droom, which have made inroads in this market. Currently the organized sector (including online marketplaces) constitutes ~ 20% of the market and has been growing at the rate of 14% between FY16 and FY 21.
However, the very nature of this market necessitates the need for combining the aspects that each player in the market brings. To understand this in more details, the aspects that need to be delved into include; each product is unique, the need for choice of products, seamless transfer of ownership while also ensuring the original seller is indemnified against any misuse of his / her vehicle, highest resale value, assurance of quality and service through warranties, etc., availability of finance, transparency on vehicle service and usage as well as ownership history, a delivery and test drive experience akin to buying new vehicle and future sale of the bought vehicle.
Each product is unique: Unlike a new vehicle, each used vehicle is unique based on how it has been driven, serviced, where it has been parked, etc. Therefore, the need for touch and feel i.e. physical check before purchase is higher than in case of a new vehicle purchase. Physical showrooms, whether owned by individual dealers or large players, help take care of this quite well with most vehicles available at one place for a physical check. The online market places sometimes necessitate going to multiple places or individuals to check out the vehicles which acts as a deterrent.
The need for choice: Since even a used car is a big-ticket purchase, people do want the choice of colors, vehicle types as per their price bands and this is where the online marketplaces provide the largest variety with a few clicks. The asymmetry between state taxes and the need for paying the same during re-registration, however, limits the scope for a pan India sale and purchase. The high transportation charges also act as a deterrent against the same.
Seamless transfer of ownership and seller indemnity: The organized sector offers safeguards and guarantees to the original seller and also through RTO tie-ups facilitates smooth vehicle ownership transfer with complete transparency about the timelines, fees, etc. At the same time, it is seen that better resale value makes several vehicles reach individual dealers too.
While the organized segment and online marketplaces claim to be giving the best resale value, a large number of sellers still rely on their existing relationships with dealers for realizing the same.–
Highest resale value: While the organized segment and online marketplaces claim to be giving the best resale value, a large number of sellers still rely on their existing relationships with dealers for realizing the same.
Availability of finance: While over 75% of new car sales are financed, the corresponding figure for used cars is ~20%. This is primarily due to lack of financing options available in the unorganized segment. The increase in spending power is similar in case of used vehicles also and this is where the tie-ups between the organized sector and the financiers score big over the unorganized segment.
Assurance of quality and future peace of mind: The organized sector has been offering certified vehicles with a km and time warranty. However, many times the warranties are for a year or so which may not be a major determinant of purchase and an informal network of mechanics being used to test the vehicle and certifying works equally well. Herein, the past experience as well as the reputation of the mechanic and the local dealer scores big with buyers.
New car like delivery and test drive experience: While even the most organized players may not allow test drives wherein the vehicle could be pushed to above the day-to-day usage patterns (as it is the same vehicle that has to be sold), the delivery experience does certainly come closer to a new car purchase.
The relationship and faith between the dealer and the customers work symbiotically in ensuing the trustworthy relationship which also manifests in the form of a future sale.–
Future sale of bought vehicle: While the organized channel, both the physical stores and online marketplaces, can certainly be tapped into, the unorganized dealers too help in repurchasing the vehicles and adjusting the value against a replacement from their inventory. The relationship and faith between the dealer and the customers work symbiotically in ensuing the trustworthy relationship which also manifests in the form of a future sale.
An analysis of different market players including online marketplaces, the organized players as well as the unorganized segment, suggests that each have its unique characteristics that are favoured by buyers, this is also the reason for a large part of the market existing in the unorganized segment.
Market players can learn from different industries, where organized players have collaborated with the unorganized segment resulting in benefits for both the segments. The E-commerce industry is a good example. Players such as Flipkart and Amazon, which were seen as directly competing with the local neighborhood stores (Kirana stores), are now partnering with them to store and deliver products, thus improving their reach and service levels, and also ensuring additional income for shop owners. Similarly, used car market players can explore a best of both the worlds model which involves close cooperation and tie-ups between the organized players and dealers which could bring about a marked shift in this segment and also make fence-sitting buyers switch to used vehicles.
Tying up with local dealers can help the organized players as well as the startups tap into the strong advocacy networks and reputations that have been built over the years. On the other hand, it will enable the individual dealers to tap into a larger pool of buyers who want a seamless experience, warranties, higher variety as well as finance, etc.
A key challenge being faced by the used car industry is the lack of transparency and data availability. Here, the organized players can lead the implementation of technologies such as Blockchain, which with its inherent strengths in maintaining transparency and data immutability, can be utilized to store and maintain vehicle ownership, parts replacement and service history details, thus improving buyer confidence. The organized players can further provide the individual dealers the knowhow and capital support to make them more adept to digitalization which can create a seamless interface. Cooperation as against competition between the organized and unorganized sectors could spell the next wave of growth in this segment.
(Disclaimer: Ashim Sharma is Partner & Group Head at NRI Consulting & Solutions India. NRI’s Aashutosh Sinha (Senior Manager) and Nishant Shekhar (Manager) made significant contributions to this study. Views are their own.)
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The report sheds light on the progressive gender shifts, rise of upcoming metro markets, growing preference towards pre-owned vehicles and a cumulative upswing in pre-owned car buyers opting for financing. The report noted that 76 per cent millenial buyers availed financing for buying pre-owned cars with an average loan size of INR 3.5 lakh.
