Used cars are win-win for OEMs

ALL THAT GLITTERS!

The Indian car market may be slowly and surely starting to recover and with more and more disposable income coming into the hands of the consumers. Looks like the  used car market is set to take the leap in terms of growth as well. So, where exactly does the used car market stand in India currently?

According to Nagendra Palle, chief executive officer of Mahindra First Choice Wheels (MFCWL), the market size is around Rs 75,000 crore. “The total size of the market is around 2.7 million – 3 million cars per annum and the average price at which the used cars are sold are between Rs 2.5 – Rs 3 lakh,” Palle told Deccan Herald.

Rakesh Srivastava, senior vice-president (sales and marketing), Hyundai Motor India, also echoes the same views. “The size of the industry is almost three million car per annum, which is around 1.2 times of the new car industry. The market is divided between the organised players, which have around 18 per cent market share, and the unorganised players, which contribute around 82 per cent,” Srivastava opines.

Srivastava also believes that the used car industry is set for better times ahead. “The size of the market depends on the new car industry size along with the carpool. The carpool in India is quite low as the vehicle penetration is only 17 per 1,000 in the country. As affordability rises, consumer disposable income will rise. This will certainly lead to an increase in the size of the industry,” Srivastava says.

MFCWL currently has 606 stores spread across 298 towns and has plans to increase the store count to 700 by March 2016. The company is aiming to sell around 90,000 units in the current fiscal through the franchise model as compared with 65,000 units it had sold last year. Some of the other prominent players in the space include Maruti True Value and Hyundai H Promise. True Value is the country’s largest certified used car dealer network with over 924 outlets in 697 cities. Hyundai Motor India had started its certified used car program under the brand name ‘Advantage’. The company later rebranded its used car business as ‘H PROMISE - APPROVED USED CAR’ on  April 1, 2014, in line with its parent company’s (Hyundai Motor Company, Korea) global used car programme.

The company currently has 359 outlets and has plans to increase it to 375 by December 2015.

According to a report by Ken Research, the Indian used car market has been dominated by Maruti True Value, while CarDekho leads the online used car market.

The future growth of used car market is expected to be led by emergence of Web aggregators and rise in preferences towards used cars.

China dwarves India
So, where does India stack up in the used car market as compared with its famous Asian peer China and maybe some of the other overseas markets ? According to a website, China used car market growth in terms of trading volume and amount rose 15.1 per cent and 8.3 per cent, respectively, on a year-on-year basis. The used car market in China is expected to usher in accelerated growth in the next few years, with trading volume to exceed 10 million vehicles by 2017.

Based on segments, China’s used car market data shows that sedan is becoming central to the market. In 2014, the volume of used sedan trading in China was 3.51 million vehicles, accounting for 58 per cent of the total; the amount of used sedan trading came to Renminbi 227.9 billion, representing the largest proportion (62 per cent) of the total. The SUV segment of the used car market in China is also growing at a fast pace. In 2014, the volume of used SUV (sports utility vehicle) trading in China reached two lakh vehicles, up 25 per cent from a year ago. The growth rate will be around 38 per cent during 2015–2018 to make SUV the fastest-growing used car market segment.

“The Indian used car market is 1.3 times the new car volumes, while the overseas the used car market is double that and hence there is a huge potential in the country as far as used car market is concerned,” Carnation Auto managing director Jagdish Khattar told Deccan Herald. Carnation Auto, founded by Jagdish Khattar, who was formerly the managing director of Maruti Suzuki, is one of India’s largest integrated multi-brand auto solutions network. It currently has 20 pre-owned outlets and 16 service centres with 20 in the pipeline.

The service economics
But is car servicing a concern for these players? Srivastava believes that it is not at all an issue as far as Hyundai is concerned. “We have 20 per cent market share of the organised used car business. The company has 175 checkpoints to evaluate the condition of the vehicle and also an assurance of one-year and 20,000 km warranty. We have 1,150 workshops across the country. Any car which leaves from our H PROMISE showrooms are serviced at Hyundai showrooms itself due to which we do not face any issues on the service front,” Srivastava says.

With many unorganised as well as regional players in the used car market, why are OEMs getting into the market and is it really profitable? “OEMs are interested because exchange helps in selling new cars. They will buy any model if it can be replaced by their model,” Khattar says.

According to Nagendra Palle, the used car business is more profitable than the new car business. “The used car market is more profitable than the new car business as the pricing is not determined by original equipment manufacturers (OEMs). The margins for new car dealers are around 3–4 per cent while that for used car players are around 8–10 per cent due to which it becomes more profitable,” Palle says. Hyundai’s Srivastava says that the company’s used car business is also profitable. “The organised used car business in the country is very profitable as the size is increasing all the while. All our H Promise dealerships are profitable,” Srivastava says.