Toyota Auction Mart will shoo away the lemons

In 1967, Japanese auto giant Toyota kicked off a novel business plan to revolutionise the used car sector of the shaky automobile industry, by introducing the auctioning of used cars, first in Japan, and later in Taiwan.

As one of the first auto companies to have a separate auction mechanism for the used car business, Toyota boasts of a long history and experience in conducting car auctions, through its own auction firms like Toyota Auto Auction, Chubu Auto Auction in Japan, and Hotai Auto Auction in Taiwan.

Sensing the demand for used cars in India, and the dearth in the quality assurance of used cars that are sold across the country, Toyota Kirloskar Motor (TKM) has rolled out its used car auction business here.

“Toyota’s mission is to make the Indian used car industry reliable and transparent to customers. Through ‘Toyota Auction Mart’ (TAM), we become the first company in the country to offer such an auction model,” TKM MD Naomi Ishii told Deccan Herald. The Toyota Auction Mart, which has been launched as a pilot at the company’s facility in Bidadi, has integrated a business-to-business (B2B) model, with now end-customers on board.

Covers all brands
Being a leading ‘first car’ automaker, Toyota is yet well-versed in the realm of the business of used cars. The company has 79 ‘U Trust’ used car showrooms across India, through which 60 per cent of the market may be addressed.

“As part of our U Trust operations, we carry on purchase and sale of all models, besides those of Toyota. The used cars that we deal in are sold with a warranty of two years, or 30,000 km. The Toyota cars that are part of this process can be as old as seven years,” TKM Senior VP  and Director — Sales and Marketing Department (Sales Division) N Raja said.

The used car sector in India is on the rise, compared with the more talked about new cars. In 2014 alone, there were 3.3 million used cars against 2.68 million new cars that were bought, roughly translating to around 13 used cars bought for every 10 new cars.

Ishii said that in a rising economic powerhouse such as India, with considerable amounts of disposable income to acquire new cars, there is a serious group of customers who have strong reasons to go for used cars. “In Japan, used cars are growing at six million units a year, against four million units of new cars. Auctioned cars, meanwhile, are at eight million,” Ishii said.

“There are many customers for used cars in India too. Usually, people switch between used cars and new cars depending on financial circumstances and preferences. In tier-II and tier-III cities, due to low utilisation, customers prefer used cars, before they actually covet a high-end new car. Also, people who have tastes for older phased-out models may willingly opt for pre-owned versions of those models,” he added. A key factor is that around 49 per cent of the used car market is dominated by transactions between customers (friends, acquaintances, neighbours, etc.), while 35 per cent is carried through individual brokers and car traders. Only the remaining 16 per cent is handled by certified OEMs and authorised dealers.

At most dealerships, when a customer drops in for an exchange, his/her car is purchased in good quality, but cannot be retailed easily as dealerships lack the professional method of car evaluation, and there are limited ways to dispose of purchased used cars.

Moreover, instances where the buyer has been cheated by a used car dealer has made him/her think that the used car market is unreliable. This calls for a well-tested mechanism like the Toyota Auction Mart.

Rigorous inspection
TAM will first receive a fleet of used cars from OEMs, financial institutions, leasing companies, insurance firms, independent dealers, and brokers. These cars include all makes and models from all available brands, which go through a rigorous inspection schedule through the hands of Toyota’s trained engineers and mechanics. “We conduct mandatory checks (just as it is done at U Trust) on 203 points of cars. The 203 points are divided into four parts —  exterior (61 points), engine and functional (includes clutch, transmission, brakes, electricals; 42 points), interior (62 points), and frame (38 points). Based on these checks, we place a value on the cars, after considering the auction price placed by the seller, before the car actually moves to auction,” Raja said.

The entire process will take place at the 5,500-square metre facility at Bidadi, which includes a display area for over 150 cars, room for over 100 attendees, and washing and inspection pits. Currently, the buyers mainly include individual car dealers, OEMs and exporters.

“We’ve not restricted this to Bengaluru alone, but have gone around a radius of 150 km and contacted 150 (registered and genuine) dealers to participate,” Raja added.

Toyota will support sellers by recommending the price based on the quality of the car; however, the final decision of the bidding price still rests with the former. In terms of how a deal is sealed, the best bidding will be selected. On the bid day, 10 per cent of the car’s value must be paid, and in the next three days, the buyer must furnish the full payment.

Win-win for dealers
Toyota is only charging a service or facilitation fee of Rs 2,000 from every buyer and seller participating in an auction, which remains the same for any model being sold or bought. “We are expecting 120 registered buyers, apart from over 50 walk-ins, during the first auction to be held in September. Around 118 cars will be on display on the occasion.” Ishii said.

“We are now planning monthly auctions. Going forward, we may need to integrate fortnightly or even weekly events. We want to have more dealers across India as participants, and also want to conduct such auctions wherever the need arises,” Ishii said.