How Bringing the Organized and Unorganized Sectors Together Can Take the Used Car Market to the Next Level, Auto News, ET Auto

OEM-induced trade-in and buy-back programs have also catalyzed the growth of this market, with the exception of markets such as NCR, which are also influenced by NGT regulations on the 10-year useful life for diesel vehicles and 15 years for gasoline vehicles.

By Ashim Sharma

In line with our “Nine Game Changers for the Indian Automotive Industry in the Next Decade”, the “used car market” is a key growth driver. The used car market in India grew by 9% from FY15 to FY21. It is expected to increase by 15% to 20% in FY22. Several factors such as decrease in cycle of ownership by new car buyers due to increased disposable income, availability of new models and better options in the Indian market, propensity to upsell by paying less than for a new car in the segment have driven to this growth over the years.

OEM-induced trade-in and buy-back programs have also catalyzed the growth of this market, with the exception of markets such as NCR, which are also influenced by NGT regulations on the 10-year useful life for diesel vehicles and 15 years for gasoline vehicles. The convenience of buying a used vehicle through digital interventions along with the availability of financing and extended warranties has also accelerated the growth of the market. In recent times, the shift to personal mobility due to fears of infection in the pandemic has caused a surge in this segment of the market.

The market was dominated by individual dealerships buying and selling vehicles as well as customer-to-customer transactions (including through online lead generators/classified ads such as Quikr and OLX), which together make up the non-customer segment. organized.

However, over the years, the segment organized in the form of players such as Maruti True Value, Mahindra First Choice and others have entered. Beside them we had online marketplaces like Cartrade, Cars24 and Droom which made inroads in this market. Currently, the organized sector (including online marketplaces) accounts for around 20% of the market and has grown by 14% between FY16 and FY 21.

However, the very nature of this market necessitates the need to combine the aspects that each market player brings. To understand this in more detail, aspects that need to be explored include; each product is unique, need product choice, smooth transfer of ownership while ensuring the original seller is compensated for misuse of their vehicle, highest resale value, quality and service assurance by through warranties, etc., availability of financing, transparency on vehicle maintenance and usage as well as ownership history, a delivery and test drive experience similar to buying a new one vehicle and the future sale of the purchased vehicle.

Each product is unique: unlike a new vehicle, each used vehicle is unique depending on how it was driven, maintained, where it was parked, etc. purchase of a new vehicle. Physical showrooms, whether owned by individual dealers or large players, help to take care of this quite well, with most vehicles available in one place for physical inspection. Online marketplaces sometimes require traveling to multiple locations or individuals to check vehicles, which acts as a deterrent.

The need for choice: Since even a used car is an expensive purchase, people want the choice of colors, types of vehicles according to their price ranges and this is where online marketplaces offer the greatest variety in just a few clicks. The asymmetry between state taxes and the need to pay the same upon re-registration, however, limits the possibility of a pan-Indian sale and purchase. High transport costs also act as a deterrent.

Transparent Ownership Transfer and Seller Indemnification: Organized industry provides protections and warranties to the original seller and, through RTO links, facilitates seamless vehicle ownership transfer with full transparency on timelines, fees, etc. At the same time, we see that better resale value also allows more vehicles to reach individual dealerships.

Highest Resale Value: While the organized segment and online marketplaces claim to offer the best resale value, a large number of sellers still rely on their existing dealer relationships to achieve the same.

Availability of financing: While more than 75% of new car sales are financed, the corresponding figure for used cars is around 20%. This is mainly due to the lack of financing options available in the unorganized segment. The increase in purchasing power is similar in the case of second-hand vehicles as well and this is where the links between the organized sector and the financiers mark time on the unorganized segment.

QUALITY ASSURANCE AND FUTURE PEACE OF MIND: Organized Sector offers certified vehicles with mileage and time warranty. However, many times warranties are around a year which may not be a major determinant of purchase and an informal network of mechanics are used to test the vehicle and certify work as well. Here, the past experience as well as the reputation of the local mechanic and dealership matters a lot to buyers.

New car like delivery and test drive experience: Although even the most organized players do not allow test drives in which the vehicle could be pushed above daily usage patterns (because it is the same vehicle to be sold), the delivery experience is certainly close to buying a new car.

Future sale of purchased vehicle: While the organized channel, both physical stores and online marketplaces, can certainly be leveraged, unorganized dealerships also help buy back vehicles and adjust value against a replacement. their inventory. The relationship and faith between the dealership and the customers work together to engender a relationship of trust that also manifests in the form of a future sale.

An analysis of the various players in the market including online marketplaces, organized players as well as the unorganized segment suggests that each has its unique characteristics which are preferred by buyers, this is also the reason why a Much of the market exists 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 segments. The e-commerce industry is a good example. Players such as Flipkart and Amazon, which were seen as direct competitors to local neighborhood stores (Kirana stores), are now partnering with them to stock and deliver products, improving their reach and service levels, and ensuring also additional revenue to traders. . Similarly, players in the used car market can explore a best-of-both-worlds model that involves close cooperation and tie-ups between organized players and dealerships, which could bring about marked change in this segment and also incentivize buyers to turn to used vehicles. .

Partnering with local resellers can help organized players as well as startups tap into the strong advocacy networks and reputations that have been built over the years. On the other hand, it will allow individual dealerships to tap into a larger pool of buyers who want a seamless experience, warranties, greater variety as well as financing, etc.

One of the main challenges facing the used car industry is the lack of transparency and availability of data. Here, organized actors can lead the implementation of technologies such as Blockchain, which, with its inherent strengths in maintaining data transparency and immutability, can be used to store and maintain vehicle ownership, parts replacement and service history details, improving buyer confidence. Organized players can further provide individual dealers with the know-how and capital support to make them more digitally capable, which can create a seamless interface. Cooperation rather than competition between organized and unorganized sectors could be the next wave of growth for this segment.

(Disclaimer: Ashim Sharma is a Partner and Group Head at NRI Consulting & Solutions India. Aashutosh Sinha (Senior Manager) and Nishant Shekhar (Manager) of NRI made significant contributions to this study. Opinions are their own. .)

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The report sheds light on incremental gender shifts, the rise of upcoming metropolitan markets, growing preference for used vehicles, and a cumulative increase in used car buyers opting for financing. The report notes that 76% of millennial buyers have availed finance for buying used cars with an average loan of INR 3.5 lakh.