Data & Tech Organizing The Fragmented Used Car Market In India
Car ownership in India is expected to double by 2025 and a major share of that growth is to be driven by disproportionately higher growth expected in the pre-owned car market.
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Until the late 90s, very few Indians could afford a car. It was a status symbol and those who had one would treat it as an extended member of the family. Letting go of the family car was not really an option and likewise buying a used car was rare and rather looked down upon. But this was 20 years ago!
Car ownership in India now stands at 30 per 1000, 4 times what it was 2 decades ago but still remarkably lower than developed economies (approx. 850/1000 in the US, UK) and neighbouring China (190 per 1000). However, it is expected to double by 2025 and a major share of that growth is to be driven by disproportionately higher growth expected in the pre-owned car market.
At over 4.5 million annual transactions, the used car market witnessed around 35% more transactions than new cars transactions in 2019-20. The ratio of used car transactions to new car transactions has grown from 1.1 in 2014 to 1.35 now, and is expected to cross 2:1 by 2025 (with expected used car annual transactions at 9 million). Also, the average age of a used car at the time of first transfer of ownership has seen a drop from somewhere around 7 years in 2014 to 4-5 years in 2020.
Multiple factors are driving this surge in pre-owned cars transactions in India:
1. Aspirational middle class with increasing disposable income upgrading to a four-wheeler
2. Changing mindset as the car being viewed more as a commodity than status symbol, hence higher realization of the obvious economic sense in going for a pre-owned car
3. COVID-19 induced health & safety concerns with travelling in public & shared transport
4. Increased trust, transparency & convenience in pre-owned car market driven by tech first organized players
Further, tech-first organized players are addressing key inefficiencies of the used car industry which can be largely clubbed into the following groups:
1. True condition & price of the vehicle
2. Assortment / wide selection for end buyers
3. Affordability through financing
4. Availability through efficient logistics, time-bound doorstep delivery
True Condition & Price
The pre-owned car market is often branded as a ‘lemons’ market because of the high risk of hidden issues in the cars which could be easily masked from the end buyer. However, tech-driven organized players with deep integrations with Vahan.nic.in & OEM service centres and detailed 200+ point proprietary inspection approach are changing the rules of the game. Just half a decade ago, none would have believed that the dealer community in India would be bidding & purchasing pre-owned cars remotely & fully online – no test drive, not even a physical look of the car! But this is very much a reality now, multiple platforms for pre-owned vehicles get thousands of bids from dealers in real-time auctions every month driving C2B transactions.
Also, while it is not easy to establish the true price of a car due to information asymmetries of this market, leading organized tech players with access to in-house data of millions of inspections & auctions and hundreds of thousands of transactions now have advanced ML-powered pricing models. These models understand the impact of different attributes from obvious ones like variant’s on-road price, body type, age, odometer reading, internal & external condition, engine transmission & suspension quality; to more nuanced ones like expected maintenance cost over time, degree of documentation; to completely external factors like transient demand-supply gap, regulatory factors etc. In a nutshell, every used car with its specific conditions is an individual SKU with a unique true price at a given point in time.
Now while a seller is seeking convenience and true price for his/her car, the needs of the end buyer are different! And again, tech-first organizations are leading the way in the B2C segment as well with product-based solutions for assortment, affordability & availability of the cars for end buyers.
A potential buyer can now search for desired model, age, odometer range, colour, other specifications from the catalogue listing thousands of cars with detailed photos and reporting of exact condition - important to understand that, unlike classifieds where condition, pricing & true availability of the car is uncertain, tech players with own inventory are offering cars at a fixed price, no hidden costs with warranty and friendly return policies. Backend algorithms are getting smarter, harnessing buyer’s historical clickstream, search & filter usage on app/website to personalize the catalogue making relevant car discovery even more convenient.
Compared to 75% loan penetration for new cars, the pre-owned car market has only 15% loan penetration primarily because of the low confidence of conventional lenders in the asset pricing & depreciation, and also to some extent perceived notion of weaker demographics of the buyers. Organized tech players in the market are now successfully filling the void; some of them even floated NBFC licensed entities for the purpose. Superior understanding of the asset price & future depreciation and tech integration with third parties providing buyer demographics & risk profile is enabling these players to come up with strong financing propositions for the buyers - fully online, on their own books & in real-time!
Last but not the least, these organizations are now offering last-mile delivery where cars are getting home delivered to buyers within 1-2 days of the booking. All of this is possible because of the robust backend logistics frameworks handling the movement of cars from procurement to refurbishment centres to photo studios, fulfilment centres and eventually to the end buyer.
The wide assortment, personalized catalogue, transparent reporting of the car's condition, right pricing and home delivery clubbed with warranty & friendly return policies is setting us up for a 100% online future for used car buying.
Data Science & Analytics is at the core of process management and critical decision making for any online e-commerce business; from driving efficiencies across retail, sales & logistics through detailed KPI dashboarding, to optimizing marketing campaigns & product design through A/B testing framework, to leveraging deep analytics for pricing, recommendation engine, superior auctioning strategies, incentive process design, fraud control etc. Tech & data powered players are creating perfect conditions for the latent demand to be fulfilled in a style which shall, in turn, create a virtuous cycle of higher supply & even higher demand.
As organized players in this segment continue to provide more transparency and trust in transactions to the customers with the help of data and technology, consumers will feel confident to buy a used car in place of a new car which is much better value for consumers.
Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house