Smooth Drive for Used Cars

In the past three years, new car sales have fallen sharply, paving way for the used car market to grow at 16-20 per cent year on year. Interestingly, a large number of takers are in their early 30s.

Given the Indian consumer's recent openness towards buying used cars, or 'second hand cars' as they are commonly referred to, one can actually go as far as to say that the domestic car market has entered a new phase of sorts. Over the past three years, the 'new car' market has slumped while the 'used car' market has seen significant growth.

According to the Society of Indian Automobile Manufacturers, in India, in 2011-12, 2.03 million new cars (units) were sold, as against 1.9 million used cars (according to players in the used car industry).

Interestingly, in 2012-13, the new car market fell by a little over 6 per cent to 1.8 million units, while the used car market grew by a whopping 20 per cent to reach 2.3 million units.

The trend continued in 2013-14; the new car market fell by another 6 per cent to reach 1.7 million units, while the used car market grew by another 18 per cent to reach 2.8 million units.

In terms of the number of units sold, the used car market has raced ahead of the new car market by 60 per cent.

Vinay Sanghi, founder and CEO, CarTrade.com, says, "The used car market has seen a buzzing 16-20 per cent year-on-year growth. And, it is bound to grow more." He adds that the ownership period for a car has reduced from eight-10 years to three-four years.

The key players of this segment include Mahindra First Choice Wheels, Maruti True Value, Hyundai Advantage, Toyota Trust, Quikr, Carnation.in, Carwale.com, Cartrade.com and others. Though Mahindra, Maruti and Toyota come with a rich legacy, others like Quikr, Carnation and Carwale are relatively newer players in the auto market that operate in the e-commerce space.

These organised players control only 20-25 per cent of the market; local brokers control the other 75 per cent. Nevertheless, organised players are promoting the segment across media channels, including TV, BTL, e-mailers, Google AdWords and of course, the choicest of them all - word of mouth.

Recently, CarTrade.com launched a TVC (created by FCB Ulka Advertising) that highlighted the pre-purchase conflict (of the head versus heart variety) that a car buyer typically experiences. The ad also did the used car market a service because it educated viewers about this industry.

What does the organised segment stand for?

The organised players in the used car industry offer a huge inventory for customers to choose from, a wide network of authentic franchises and a car buying experience that closely resembles that of buying a new car - the consumer can conveniently check availability of his/her choice (brand, model, colour) before visiting the franchise. Brands in this segment have tied up with dealers who in turn park (no pun intended) their inventory on the brands' websites.

Nagendra Palle, CEO, Mahindra First Choice Wheels, says, "Four things are important to a consumer while buying a used car - a 'friendly' buying experience, good vehicle conditions (used cars are not perfect!), a fair price and efficient/non-tedious paperwork for the transfer of ownership rights and the like."

How does it work?

Operating traditionally, most unorganised players in this category offer none of these. Organised players, however, appear focussed on giving buyers a good experience. They estimate car prices using online calculators; since this on an open, public forum, buyers get a sense of transparency. They also offer warranty for the car condition, and take responsibility for the paper transfer, a tedious process.

Players such as Carnation, Quikr, Cartrade and CarDekho are big platforms for dealers of used cars to display their inventory. The brands do not own any inventory but, through their online platforms, serve the purpose of connecting the dealer and the consumer. Dealers are required to mention all relevant information about the car before availing a listing on any of these sites.

Interestingly, while Mahindra, Toyota and Hyundai have their own on-ground inventories, they expand their base by also aggregating inventories from these dealers. Organised players build their inventory by buying used cars; filters include damage, engine condition and distance travelled.

While most of the well-established auto giants deal exclusively in their own brands, Mahindra does so across brands.

According to industry players and a Quikr report, typically, a used car sells within a period of nearly three weeks once it shows up in the inventory.

What's the 'used car buyer' like?

There are three types of used car customers: Firstly, those motivated by the financial aspect. They are mindful of the fact that a new car depreciates in value by 20 per cent in its first year and that subsequently, the selling price falls even more. Buyers in this group form a very small segment.

Secondly, those who want a higher value for money, and lastly, first-time car buyers, who have just about entered the workforce and are looking to buy a car.

For brands in the space, target buyers include families, youngsters in their early 30s, and others looking for an 'extra car' at home.

Consider this price comparison: A brand new Maruti Suzuki Alto 800 Lxi CNG costs Rs 3.5 - 4 lakh, an amount that can fetch a buyer a two-year old Honda City, driven around 30,000-40,000 km and raring to go for another 65,000-90,000 kms.

"Rich people buy new cars, while financially savvy people buy used cars," says Jagdish Khattar, MD, Carnation Auto India, "While world-over its already a popular phenomenon, in India it is beginning to grow now."

Major hubs for the used car market are Delhi, Mumbai, Bengaluru, Hyderabad, Chennai and Pune. Maruti followed by Hyundai are the most traded used cars. The average transaction price is around Rs 2.75 lakh. This figure, we learn, is on an upward swing.

Change and Challenge

In India, buying a car is a family decision, second in importance only to buying a house. Trends show that until two decades ago, people had limited choices such as Fiat Padmini, Ambassador, Maruti Van or a Maruti 800 (we are not counting the Mercedes-Benzs and Chevrolets!). They planned their purchase two years in advance; the option of Easy Monthly Instalments or EMI, otherwise seen as an unpleasant reality, is actually a luxury only the relatively 'modern' buyer has.

A lot has changed in the last two decades. EMIs reduced the pre-purchase decision time and brought in more buyers. Also, a high 'new car launch' rate has spoilt the consumer for choice. The biggest change, though, has been the increasing acceptance of used cars.

Factors responsible for this perception change include improving quality of the cars/engines in general, more first-time car buyers, and organised players lending some of the much-needed trust factor into the game.

Today, many families with four to five members, that need a big car, opt to shop in the used car market. "There are many first-time buyers who opt for a second-hand sedan instead of a new hatchback," observes an auto expert.

The negative connotations around the word 'second-hand' are disappearing fast. However, many still have a problem with the phrase and the reality of it. The challenge, therefore, for players in the used car segment, is to spread awareness and acceptance.

Brands are looking to strengthen their dealership networks. Mahindra has over 350 outlets, Maruti has over 450 outlets. Focus is on ensuring that the dealer networks remain profitable and the inventory turns into cash.