With sales for new cars still sluggish, carmakers’ rivalries seem to have shifted to the larger used car market, which, incidentally, has been showing strong growth of 20-30% in the past few years. In order to boost sales from replacement buyers and compete with Maruti Suzuki’s much larger ‘True Value’ chain, Hyundai, India’s second-largest car brand, is both expanding and replacing its entire used car sales arm to the new global ‘H-Promise’ brand, from the erstwhile ‘Hyundai Advantage’.
Hyundai, which now sees 22% of new car sales coming from exchange deals, from 16% in 2011, aims to up the ratio to over 30%. Its H-Promise brand, which saw volumes grow 18% year-on-year to almost 70,000 used cars in 2013, hopes to increase the used car network to 385 by March 2015, from 330 today. Hyundai’s used car sales have gone up by 75% since 2011 when it sold 40,000 units.
In comparison, market leader Maruti’s 744 True Value outlets have helped generate 27% of new car sales — the company will increase the network to 850 by next year. Maruti’s used car volumes have also risen 18% year-on-year to 2.83 lakh units in fiscal 2013-14, and tripled over the past five years from 1.03 lakh units in FY09.
Maruti’s head for domestic sales and marketing RS Kalsi said in most cases its True Value outlets are profitable on their own, though dealers look at the used car business as an integrated proposition with new car sales. “The market is evolving and for us the True Value outlets ensure that our customers have the comfort of upgrading their cars at a place where they know they will get a right price and that their car will not be sold to an unscrupulous element,” he said.
Rakesh Srivastava, senior VP, marketing & sales, Hyundai Motor India, told FE, “We are re-branding and aligning our network as per our new global dealership space identity, to offer customers Hyundai’s brand ideology of modern, premium and youth.” As part of the strategy, the shift to H-Promise has happened for the used car business, while 40 new car showrooms will also be soon upgraded to align with the global branding. Srivastava, incidentally, is a former Maruti executive.
Kumar Kandaswami, senior director at Deloitte Touche Tohmastu (India), added that the used car market should double in the next two-three years. “Over time the car market will see more depth and segmentation. First-time buyers would want to start with premium cars and more two-wheeler owners will look at owning cars. For these segments, the used car market will be a starting point,” he said.
The domestic used car market has huge potential for two reasons. Firstly, the market today accounts for just about 3 million units and is about 1.2 times bigger than the new car market of 2.5 million units. In comparison, the US used car market is three times bigger, which means India still has a long way to go. Secondly, organised chains such as those from manufacturers like Maruti, Hyundai, and even Mahindra First Choice only account for 20% of the used car market. This again means that the headroom is big.
Incidentally, the growth has been the highest for used luxury cars like BMW, Audi and Mercedes-Benz, with volumes rising 60% to about 30,000 units in 2013-14.
Gaurav Vangaal, automotive analyst for light vehicle forecasting at IHS Automotive, said, “The used car business provides add-on value to the car manufacturers by increasing footfalls at showrooms from customers looking for good deals on new cars. While it may be profitable as a solo business vertical as well, the growth of the used car market indicates that car owners now want to upgrade their vehicles much faster. In fact, the average period of car ownership has fallen to about five from seven in about a decade, and will likely edge towards three years as seen in the developed markets.”
More carmakers are also entering the used car business with a similar objective of boosting new car sales through exchange deals. Renault hopes to start soon, while Volkswagen recently started this business. Ford also hopes to start its in-house financing arm to support growth in its used and new cars business.
“Branded used cars will capture the market because they can offer lower insurance rates and warranty, . Online presence for used car dealers will clearly be the tipping point and help the market grow. Car dealers, especially from smaller players, will also push for a used car business because they would want to add a revenue stream,” Kandaswami said.
The growing interest in the used car business is clearly stoked from the fact that first-time car buyers, usually young people in their first jobs, have been getting risk averse and reluctant to make large purchases at a time when the country’s economic growth is uncertain and job security is a worry.
