Pre Owned Cars - The bright spot in the Auto Sector
Amid all the gloom and doom news on sales in the Automobile sector over the past few quarters, one segment which has burnt bright is the Pre Owned Cars one.
The Pre Owned Car Market in India is estimated at 24Bn$ (2019) and is expected to grow at a CAGR of 15% over the next 5 years. The Unit Sales fig crossed the 4Mn mark in FY19 and is ~1.3 times the new car fig. For comparison, the pre owned car sales in the US are 2 times the new car sales (~34 Mn compared to 17Mn).
With the reduction in GST for PreOwned cars - 12-18%(Depending on the car category) from 28% and with the BS VI norms kicking in expected to further help with the price advantage, this segment should see brighter days in the future. A big opportunity also lies in the unorganised nature of the segment. While buying a new car is a relatively hassle free process, the pain points involved in selling a used car from the research involved to ensure optimum price, paperwork and preference for cash deals means that sellers generally tend to look towards friends and family for referrals or a trusted local dealer . No wonder direct seller to buyer deals and sales through unorganised dealers account for nearly 70-80% share of the sales. Its a sellers market, with Demand outstripping Demand.
New age startups like Cars24, CarDekho, Droom and OLX have entered this segment along with the legacy OEM players like Maruti True Value, Mahindra First Choice etc to drive the organised share. The essential key to disrupting this market would be building TRUST and enabling digital first customers to complete the overall buying and selling process online, along with the financing support. Addressing the needs of different customer segments and marketing your value proposition accordingly will be key. For example, the bulk of the buyers in this space are still the upgraders from two wheelers to first time car owners, however the needs and value proposition for this segment is very different from the millennial crowd which is completely skipping over two wheeler ownership and is possibly interested in owning a luxury car basis their higher disposable income. Driving the car buying cycle akin to a smartphone purchase cycle is also an interesting marketing problem.
Another interesting angle comes from the big car markets like the US and China. (~280 Mn and 300 Mn cars resp). These countries have started exports in a big manner to neighboring countries. Considering the demand opportunity in India, on can foresee a scenario where a Chinese controlled/funded startup leverages this arbitrage by exporting to India. One immediate argument to be made against this is the right hand /left hand driving contrast in India and China. However the Indian Motor Vehicles Act doesn't expressly forbid Left Hand drive cars.
Section 120 in The Motor Vehicles Act, 1988
Vehicles with left hand control.—No person shall drive or cause or allow to be driven in any public place any motor vehicle with a left-hand steering control unless it is equipped with a mechanical or electrical signalling device of a prescribed nature and in working order. from plying in India. This may be an opportunity ripe to exploit. All said and done, this is a segment to be watched in the coming days and with certainly a bright future. All Stats - Mordor Intelligence, IndianBlue