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Old 23rd August 2016, 15:21   #1
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Default Interesting Report on the 'Used Car Market' by Mahindra First Choice

Read the full report at this link!

Interesting Report on the 'Used Car Market' by Mahindra First Choice-infographics.jpg

Scale: Market has reached critical mass, shows significant potential

- India is expected to be amongst the top 5 automotive markets in the world by 2020.

- At 3.3 million units, the pre-owned car market is growing at over 15% a year (organized segment is growing at over 25% a year).

- Just under half (45%) of all pre-owned cars sold are in Metros. Non-metros account for over half (55%) the pre-owned car volume sold and are growing faster than the metros.

- The North leads the pre-owned car market in India. At 36% it represents the largest geography, followed by the West (27%), South (26%) and East (11%).

- The North and West regions exhibit more organized channels than in the South. The East, while more organized, is a significantly smaller market and also highly concentrated in a few areas.

Structure: Largely unorganized retail & wholesale

- The market is supply-constrained, with inventory turns at dealers under 30 days vs. traditionally 60+ days in the U.S.

- Pre-owned car channels are highly fragmented with four primary market segments:
Organized: 12% market share, Average Volume at 16 per month
Semi-organized: 35% market share. Average Volume at 9 per month
Consumer to Consumer: 34% market share
Unorganized: 19% market share. Average Volume at <3 per month

- The unorganized sector is highly fragmented. It accounts for the bulk of the dealer population (58%) and only 19% of the total volume.

Stage: Developed in some ways, nascent in many

- India’s motorization rate lies at 22 cars/1000 people. US is over 800 cars/1000 people with a car parc that is 10X that of India.

- Like that of the U.S., the pre-owned car market in India is larger than its new car market (1.2X). China’s pre-owned car market, though larger in volume compared to that of India’s, is less evolved at 0.5X that of its new car market.

- Scale and price point are major drivers – dealer productivity and gross margins make India a relatively shallow market (dealer economics).

- Indian pre-owned car market is highly unorganized, when compared to the U.S., but more organized than that of China.

- There is significant headroom for pre-owned car financing, with growth expected in the coming years – Pre-owned car finance penetration in India is under 15%, while that for new cars is approximately 65%.

- Finance penetration is significantly higher within the organized channel (40% across the metros and non-metros), while the semi-/unorganized channel is highly fragmented with higher channel costs for lenders.

- There are over 6,000 approved NBFCs in local markets that are funding pre-owned vehicles in India.

Customer profile and buying behavior

- 50% of buyers are in the 25-34 years age segment.

- Average age of a pre-owned car at the time of sale is 4 years with average ticket size at INR 3-4 lakhs.

- For more than half (55%), a pre-owned car is the first in the family.

- Affordability, followed by value for money are primary reasons why customers consider pre-owned cars. The buyer looks for a trusted source and quality product to complete his pre-owned car transaction.

Last edited by GTO : 24th August 2016 at 12:08.
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Old 23rd August 2016, 15:46   #2
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Default Re: Interesting Report on the 'Used Car Market' by Mahindra First Choice

Interesting. Thanks for sharing GTO.

Like many others here I too am of the opinion that used cars offer the best means for an upgrade without damaging your finances much. But honestly, the cars being sold currently simply do not inspire your confidence, and even the organized ones like FirstChoice et all are seen using the same unscrupulous means as others many a times. I have seen that around 90% people who can even manage finances, just don't want to get into the hassle of pre-owned ones.

As long as the organized market does not ensure trustworthiness good enough to buy a used car knowing the dealership would have taken care of everything, this segment will never reach it's true potential for growth.

Last edited by avisidhu : 23rd August 2016 at 15:47.
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Old 23rd August 2016, 16:03   #3
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Default Re: Interesting Report on the 'Used Car Market' by Mahindra First Choice

Quote:
Originally Posted by GTO View Post
For more than half (55%), a pre-owned car is the first in the family.
This is really surprising! Considering the price range of 3-4 lakhs I thought most of the buyers would prefer a new Alto/Kwid/Eon than a bigger used car.

Again, for an uninformed customer its just a piece of machine used for going from point A to point B so they wouldn't care how old the tyres are or whether a battery might need replacement within a year or a major repair work coming up soon.

Thanks for sharing this though, my perception was totally different.
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Old 23rd August 2016, 16:07   #4
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Default Re: Interesting Report on the 'Used Car Market' by Mahindra First Choice

Based on my experience in both buying/selling pre-owned cars, I see the following issues that need to be resolved -

1) Evaluators don't offer enough extra premium for well maintained cars. They have a small price offer range for a particular model/year car. You are better off selling such well maintained cars via classifieds because a good buyer will pay a much higher premium.

2) The habit of organized car dealers to put a huge sticker price because they anyway expect a customer to haggle/bargain. I saw a 2007 Honda Civic V-AT with a sticker price of Rs. 5.5 Lacs, but they were offering it for Rs. 4.5 Lacs even without me evincing much interest in it. In most places, the quoted prices are like Diwali Crackers - Rs. 1000 on MRP but ready to sell for Rs. 600

3) There needs to be some sort of transparency in pricing (Eg: we paid Rs. 5 Lacs, we added Rs. 10K worth of stuff, we are selling for Rs. 5.4 Lacs).

4) I don't think there is enough financial reasons (meaning loan defaults) for offering used car loans at 12 - 15% per annum and new car loans at 8 - 10%. Loan rate should be based on CIBIL scores.

5) There should MORE single brand (Eg: Ford only, Chevrolet only) used car dealers, rather than multi-brand. Unless you are looking for something like a SWIFT or ALTO, a customer has to make multiple visits to multiple dealers to find the car they are looking for.

Last edited by smartcat : 23rd August 2016 at 16:11.
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Old 23rd August 2016, 17:24   #5
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Default Re: Interesting Report on the 'Used Car Market' by Mahindra First Choice

One of the reasons why the Used car market is fairing well in India is party due to the fact that India has a parallel economy system!

The benefit of buying a used car is three-fold unlike buying it new. Knowing quite well that a car is a depreciating asset, if there is an option of adjusting your cash income, saving on your hard earned taxable income, and buying it at a fraction of a cost, many would consider it a no brainer.
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Old 23rd August 2016, 18:12   #6
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Default Re: Interesting Report on the 'Used Car Market' by Mahindra First Choice

Interesting report indeed!

I am surprised to see that, on an average, a car's age at the time of sale is just 4 years. I expected it to be slightly more than that. In my opinion, 4 years is too small a time frame for the first owner to extract the value of a car.

Quote:
Originally Posted by GTO View Post

- There are no formal wholesale channels for dealers to procure pre-owned cars.
Aren't companies like Cars24 and CarTrade dealing in this particular sphere (B2B sales)?

Last edited by dZired : 23rd August 2016 at 18:13.
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Old 23rd August 2016, 18:37   #7
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Default Re: Interesting Report on the 'Used Car Market' by Mahindra First Choice

Issues:

1) Distrust in almost all preowned car sellers. (Owner Sellers seem to be most honest). Even Premium brands official channels like those of BMW, Honda etc, have been know to mislead a customer.)

2) Too much haggling and absurd upfront pricing affects the buying process.

3) Finance deals are at a 3% premium over new cars though the preowned cars are actually a better proposition as they are already devalued and hence there is no danger of significant drop in price in next two years as in the case of a new car.
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Old 23rd August 2016, 21:06   #8
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Default Re: Interesting Report on the 'Used Car Market' by Mahindra First Choice

Quote:
- Indian pre-owned car market is highly unorganized, when compared to the U.S., but more organized than that of China.
What exactly is the definition of an "organized" used car market?

Quote:
Originally Posted by smartcat View Post
Loan rate should be based on CIBIL scores.
They should be indeed be based on CIBIL and I'm no expert, they might already be factoring in the score. I'm guessing banks would feel they're assuming greater risk because if the buyer defaults on the loan, they'd be left with the job of selling a car with lesser resale value due to multiple ownerships and higher age of vehicles.

Last edited by Tanmay K : 23rd August 2016 at 21:12.
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Old 23rd August 2016, 21:58   #9
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Default Re: Interesting Report on the 'Used Car Market' by Mahindra First Choice

A big deterrent for used car market to get organized is because there is a huge amount of black money changing hands in used car sales. In Kerala , there are many who buy luxury cars in secondary market to avoid income tax. Last week a friend picked up an Evoque for 35, every single penny in black.

While IT department can find out people who buy new cars using PAN number, there is no way they can find the used car buyers. And even harder is to prove the amount of money one paid for. The majority of luxury used cars are sold in a select few districts with high amount of unaccounted money.

For the foreseeable future the major chunk of used car sales costing more than ₹ 10 lakhs will remain unorganized. Will IT department finally wake up to smell the coffee?
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Old 24th August 2016, 12:19   #10
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Default Re: Interesting Report on the 'Used Car Market' by Mahindra First Choice

Quote:
Originally Posted by avisidhu View Post
I have seen that around 90% people who can even manage finances, just don't want to get into the hassle of pre-owned ones.
Pre-owned is definitely not for everyone. For the layman who doesn't know much about cars, new is preferred (MUCH safer). To people like us, pre-owned cars rock as we're able to get superb deals on excellent cars. I'm currently on my 5th pre-worshipped car.

Quote:
Originally Posted by fine69 View Post
This is really surprising! Considering the price range of 3-4 lakhs I thought most of the buyers would prefer a new Alto/Kwid/Eon than a bigger used car.
That's the average ticket size. I'm guessing first timers would buy a car costing 2 lakhs or under. If they could afford 3 lakhs, might as well go with the Alto / Kwid.

However, two of my used cars (City Vtec & Civic) were sold to first-time car owners.

Quote:
Originally Posted by smartcat View Post
I don't think there is enough financial reasons (meaning loan defaults) for offering used car loans at 12 - 15% per annum and new car loans at 8 - 10%. Loan rate should be based on CIBIL scores.
There are many reasons for the higher interest rates.

Say a customer defaults after 3 years. If it was a new car, it's very easy for the bank to sell off a 3 year old car in auctions at a fairly predictable price. On the other hand, 6 year old cars are a headache to sell. When they do, it's for peanuts. The older the car, higher the chance of serious mechanical issues too. No bank wants to deal with a car that has a busted engine or gearbox. Lastly, when a new car is bought, it is from an authorised + organised dealer. Too many things can go wrong in a used car (odometer rollback, flood-damage car, impending engine failure etc.) bought from the disorganized segment.

From the banker's POV, new cars are surely a safer business bet than used cars.

Quote:
Originally Posted by 9thsphinx View Post
One of the reasons why the Used car market is fairing well in India is party due to the fact that India has a parallel economy system!
Well said!

Quote:
Originally Posted by dZired View Post
I am surprised to see that, on an average, a car's age at the time of sale is just 4 years. I expected it to be slightly more than that. In my opinion, 4 years is too small a time frame for the first owner to extract the value of a car.
While I personally own cars until they are 8 - 10 years old, most people I know switch between 4 - 5 years. People simply want to upgrade sooner - they want the 'latest & greatest'. Manufacturers are also doing a fantastic job of luring them with new designs, engines, technology etc.

Quote:
Aren't companies like Cars24 and CarTrade dealing in this particular sphere (B2B sales)?
Great point, thanks! Removing it from the opening post. Cars24 is too small right now to make a difference; CarTrade however is HUGE in the B2B category.

Quote:
Originally Posted by ACM View Post
Distrust in almost all preowned car sellers. (Owner Sellers seem to be most honest).
I don't buy based on how the seller is. You can get a good car from a bad dealer / owner, or a bad car with a good dealer / owner. I only look at the car's condition.

Quote:
Originally Posted by Tanmay K View Post
What exactly is the definition of an "organized" used car market?
Organized retail players like Maruti True Value, Mahindra First Choice etc.

Quote:
Originally Posted by The Rationalist View Post
In Kerala , there are many who buy luxury cars in secondary market to avoid income tax. Last week a friend picked up an Evoque for 35, every single penny in black.
I know some idiots who buy cars with black money and further, get it registered in a friend's name, so they don't fall in the tax net.

Last edited by GTO : 24th August 2016 at 12:24.
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Old 24th August 2016, 14:16   #11
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Default Re: Interesting Report on the 'Used Car Market' by Mahindra First Choice

Quote:
Originally Posted by GTO View Post

From the banker's POV, new cars are surely a safer business bet than used cars.
I have no hopes on old fuddy duddy bankers - they all are conservative folks with little imagination.

It is private players like Bajaj Finance that needs to step up and shake up the vehicle finance industry. Like how, you can buy any consumer item now (zero value after it leaves the showroom) on EMIs on 12 to 16% interest rate - for loans up to Rs. 3 Lacs - all this using an app! This picture explains Bajaj Finance's success in shaking up the consumer loans industry -

Interesting Report on the 'Used Car Market' by Mahindra First Choice-bajajfinance.jpg


If Bajaj Finance can use technology (using app, checking credit profile, customized interest rates) and offer instant loans on zero-value assets, I don't see why private companies can't offer used car loans at lower rates - especially since the loan value is partly backed by asset that can be sold to recover some part of the loan.
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Old 24th August 2016, 14:33   #12
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Default Re: Interesting Report on the 'Used Car Market' by Mahindra First Choice

Interesting study this. The study does echo a lot with the general consumer too and thus seems to be spot on.

I was in the market very recently to sell my own 4 yr old Sx4 and on the lookout for a good used automatic D1 sedan.

So the study seems to have hit the nail on a lot of points:

1. The average age of vehicle is 4 yrs. Spot on, my car is precisely 4 yrs old.
2. Average ticket size 3-4 lakhs. Seems very accurate, various offers i got were in this range.
3. 50% of buyers in the age bracket of 25-34 yrs. My parents used there veto power and strictly told me to stay away from the used car market.

My experience pretty much echoes this report . I would have gone on to buy a 2 yr old Elantra SX AT, with barely 11K on the odo, at a very good price 9 Lakhs, if not for my parents, who still do not have much faith in the used car segment in India.

I have in the past heard a lot of horror stories, (a couple of them here itself) regarding a used car causing a lot of problems leading to an engine rebuild within a short span of time after being bought.

The general perception still is to buy a new car for a hassle free ownership, and also at a lower cost of finance.

Unless the finance rates and credibility levels of the used car market goes up, this segment will always remain below par.
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Old 25th August 2016, 19:21   #13
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Default Re: Interesting Report on the 'Used Car Market' by Mahindra First Choice

IMO used car industry in India could have been much larger than the estimates if the sellers could establish good intention regime. All of us more than often hear cases where a buyer has duped (by both organized or unorganized sellers).

The primary reason behind setting up organized retail shops (Maruti True Value, Mahindra First Choice, Das Welt, etc.) was to enthuse confidence in the customer that he won't be cheated. That however did not find success as these shops kept multi branded inventory and most of them knowing nothing or having only a limited knowledge about the products listed for sale.

Sales here are also driven by individual target achievements rather than identifying a customer's requirements and suggesting him the best fit.
This has more than often lead to customers buying bigger cars with lower resale value but huge maintenance bills which further brings a bad name to the sector.

Sales Reps also advise customer's based on their individual knowledge about the car. Ignorant customers are happily handed over with the donuts.

I agree that used car market is the best way to upgrade but even with the advent of so called organized players, the buyer still has to go by the principle of caveat emptor.

I find the segment growing more because of economic factors where on one hand, the middle class (a large part of the population) is growing (mostly under 35) with higher disposable income and more aspirations with Inventory aggregators like Cars24 and CarTrade only helping on the supply side.

Last edited by MacBa : 25th August 2016 at 19:25. Reason: grammatical corrections
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Old 26th August 2016, 11:54   #14
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And it's a little disappointing when a startup that tried to bring some order to the chaos, shuts down citing the immaturity of the market.

https://www.techinasia.com/millions-...heres-happened

GoZoomo also specifically mentioned the lack of a pricing standard, like the Kelly Blue Book in the US, as a major detriment to their operations.
Indian Blue Book is trying to set that right. Hopefully it catches on in the days to come.

Last edited by Zappo : 26th August 2016 at 12:17. Reason: Please put your thoughts at one go in a single post. Back to back posts merged.
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Old 26th August 2016, 12:00   #15
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Default Re: Interesting Report on the 'Used Car Market' by Mahindra First Choice

Though a little off topic, check this. A tech startup in the pre-owned market space shuts down and returns VC money.

https://www.techinasia.com/millions-...heres-happened
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