Indian used-car industry - Challenges and Opportunities

Used-car industry has flourished in India in past few years in an extraordinary way. This sister-industry of the new-car industry has came a long way from selling a few thousand cars every year to the current situation when it is selling cars almost one and a half times more than that of the new car industry.

Both these industries have grown leaps and bounds in the past years with the core reasons being multi-faceted. Right economic environment has enabled a large chunk to earn more, consume more and hence, spend more. Specific to the used-car segment, the growth has been contributed by the rising urban population, a large part of which is the young and ambitious workforce. A change in lifestyle in tier-II and tier-III cities have played its part too in taking the once a luxury, four-wheeler, to great stretch.

Apart from the factors from the consumer side, the industry has greatly benefited by the regulations and policy support from the government in last few years. The Industry has responded as enthusiastically as the consumers have by bringing a flood of new cars models spoiling its customers for choice.

The advent of foreign car makers not just raised the bar for the competition but also bestowed the population with cars which they had longed to own for long time. Not to mention, the technology and wealth they brought to India in terms of knowledge and assets.

However, last few months have not been great for the new-car industry. Fortunately, the same is not true about the used-car industry.While the new car market showed negative growth in the past few months, used-car market has been growing at a pace of 22% year by year. The current Indian used-cars market is pegged at around 2.5 million units a year. The Industry is said to be worth around Rs 52,000 crores. (Source: Crisil’s report on used car industry)

The used car market has always been dominated by traditional unorganized players in India. However, this changed a few years ago when Maruti True Value, Mahindra First Choice Wheels ltd etc set up their shops to sell used-cars in India.In few years organized sector has grabbed almost one-sixth of the market and the expansion plans make us believe that this is only going to rise further. Organized players have given a much needed stability to the used-industry and hence their entry is a welcome sign for the industry as well as for the customer.

Organized players have access to funds, technology, processes and man power to ensure that they are on track with their plans and hence there are more reasons to believe the crisil report which suggested that a quarter of the market will be under the organized sector in a couple of years from now.While the entry of OEMs like Maruti, Tata, Mahindra and Hyundai which have always been offering value for money products was a pleasant surprise, the debut from luxury car makers like BMW, Mercedes-Benz and Audi into this segment is really exciting. This will do many things in the market. It will start a culture where buying a used-car will no longer be looked down upon. Imagine someone buying a Mercedes which is pre-owned, it still is a Merc! The culture is very dominant in US where the ratio of old to new cars sold every year is as high as 3:1 while it is almost half in India at around 1.5:1.

Apart from the OEMs, entry of ventures like car nation and online format like cartrade, gaadi etc are also making the stage competitive making customer, the highest beneficiary.However, a lot needs to be done yet. The segment, especially in the organized format is especially nascent. This is clear from the steps car nation, which is promoted and run by Ex-Maruti MD Jagdish Khattar, has taken in the last few years. From a multi brand used-car retail outlet to service stations to financing, to accessorizing shop and what not. It is easy to recognize that there is a big gap between the services supplied by the existing players 

and consumer demand and hence after every step there is an opportunity that should be tapped.

Various challenges are there for the industry which needs to be faced in the coming years. The challenges are both, different as well as similar for the organized and unorganized format players. For example, the organized players have to break the market to take position which will make their presence worthwhile. The price point difference in an extremely price sensitive business like this is another threat to the organized used-car segment. However, credibility and trust due to the brand associated as well as the professionalism which they employ in their operations are most important strengths of these players.

On the other hand while the unorganized players mostly work in the personal relationship domain, they have challenges like diluting trust and hard-hit credibility and hence more professional and transparent approach is the way forward for this segment. However, due to tight focus on the costs these players are always able to make the price difference subtle for the customers. But going forward, this may not be the best strategy considering the changing customer lifestyle, attitudes and perceptions about used-car purchase.

Cheers,