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Used car business has grown due to increase in demand and supply of cars, CEO Cars24 – ET Auto


In an interview with ETAuto, Vikram Chopra, co-founder and CEO of Cars24, talks about the market dynamics of the used car business and the factors that will drive the market. Edited Excerpts:

Q: Now when the economy is down how do you see the rush in your business since used car sales from 3.3 million have come down to 2.5 million. On the contrary, people are moving towards used car. How do you read that? And do you think it will continue for longer?

A: There are significant tailwinds to the used car business. More and more consumers are looking to buy a car and a used car is more affordable than a new one. The new car sales are impacted, not for want of demand, but for the problems in production.

Q: Yes, there have been production constraints. Fall in production, besides the current economic situation, is also because of the comparison with that in 2019 and 2020. Does the used car business benefit from the decline in disposable income with the people?

India has only 20 cars per 1000 people. Even the other developing markets like Vietnam and Thailand, have 100 to 200 cars per 1000 people. Our penetration level is very low. I believe that’s largely driven by affordability. As the economy grows and the purchasing power of people increases, new cars will be affordable for more people. The used cars are less expensive than new cars and are affordable for many more people. The only proposition that’s important to be offered to a consumer is high quality. That’s where we come in, that we can help owners sell their old cars, and help a customer buy a high quality pre-owned car that will fit into his/her budget. And that boosts the growth of the used car market..

Q: What are the main factors that have triggered the demand for used cars in the last three years?

As the consumers get more sophisticated, they like to change their cars more often as there are more variants and styles available. This has been happening for the past five years. The economy has been growing. Many more OEMs launch new cars with better features. The Indian consumers who can afford them are looking for new variants with more sophisticated features, the latest technologies and they change their cars more often. This means that there is more supply of used cars. In the market there is always demand for them. The issue has always been the supply. As the supply has increased, as consumers sell their cars more frequently, the demand also is on the rise. The unfortunate event of Covid has created more demand for used cars as people want to shun public transport and prefer to own a vehicle, sometimes even a second one. I think the tailwinds are getting even stronger, with more people looking to own a car as soon as they can.

Q: As there are people who often change their cars for advanced features, what is the average life cycle of a first owner car? How long does a buyer keep the new car and what is the status right now?

Well, we can say an average of four years for the entire country. But in cities like Gurgaon, Delhi or Mumbai, there are owners who even sell their cars in two or three years.

Q: What is the market share of buyers of used cars since 2019 when the economy began to slide? Do you think there are people who want to buy their first car and be its first owner, are choosing to be a first owner of a used car, or are they trying to jump a segment by acquiring a used car, how do these metrics work?

Almost 50% of car buyers are first-time buyers. Most of them start their journey as a car owner for the first time by buying a used car at an affordable price within their budget.

Q: What is the price range that the customers are looking at and the segment they prefer?

A: On an average it’s around INR 2 lakh for the purchase of a used car on our platform. There are buyers for around INR 6 lakh, and some even go up to INR 15 lakh.

Q: What is the segmentation of buyers based on the price band? Can you divide them into segments and give the percentage of buyers in each segment?

I think about 10% will be in the segment of INR 2 lakh to INR 3 lakh, 15% percent in INR 3 to INR 4 lakh and 20% in INR 4 to INR 5 lakh, and so on.

Q: Do you say that buyers in the higher segment are more, and the demand for INR 5 lakh to INR 6 lakh cars is more?

I wouldn’t look at it that way. Even the starting price for a premium hatchback is around INR 6 lakh to INR 7 lakh. So it’s still significantly cheaper than that for a consumer.

Q: So does this indicate that people are trying to jump this segment initially. If they go for a new car, they’ll probably end up buying a hatchback or something similar, but for the same cost they can get a used sedan or SUV?

There are consumers who are looking to upgrade, or others who can get the same car at a 30%-40% discount. Nearly 50% of the consumers prefer to buy a better car for the same budget. The others, by saving on their budget, buy a pre-owned vehicle at a 30% lower price than a new car.

Q:How are you planning to tap the opportunity since people are graduating to used cars for a better segment and what kind of volume expectation do you have?

When someone is looking to buy a pre-owned vehicle, I think there are two most important things in his/her mind. One, will I find the car that I’m looking for, or will I get the car of my specifications like the model not driven more than 30,000 km in this colour, or not older than that, and the like.

The second thing is quality. It is a very big concern for any consumer that “will I get a quality car for the money I invest.” I think we have solutions for these two very important problems.

We have launched the first of its kind product in India, which is buying a car online. At Cars24 we are offering a proposition to the consumer to buy a car online. Unlike in the regular dealerships the customer can select from about 10,000 cars online. Once a booking is done we take that car, which has a six months’ warranty, to the customer’s home and if he/she does not like the car for any reason after the test drive and close examination, it can be returned within seven days. That’s how we are solving these two most important problems for a consumer.

Q: How do you see the used car volume this year in India and what’s your plan ahead?

It’s hard to predict where the volumes would be for the entire year as we are still in lockdown. And it’s not clear when several lockdowns will get lifted.

Q: You have been in this business for the past six years. How have your finances been so far? When do you think you will reach the break-even level?

We have been growing at a fast pace on an average of more than 100% year-on-year in revenues. Even during this Covid period our growth continues to be strong. We are still a small player with only 5% market share. The focus for us is to continue gaining market share, both on the supply side, when a seller is looking to sell his/her car, and on the demand side when somebody is looking to buy a car.

Q: What is your view or guidance on the company turning profitable? And how much profit are you looking at?

I don’t think we can discuss those things. But what I can tell you is that we are very small right now from a market share perspective. I think the large part of focus is gaining market share, because that’s how we can create a better consumer experience.

Q: Are you planning to beef up your expansion? What kind of investments are you planning? And what kind of market share are you looking for?

We have just launched the buying online product, which is the first of its kind. Now consumers can come and choose from 10,000 cars.We provide also real time financing, which is very hard to get otherwise. Over the next few years, we are going to grow this significantly and we are investing a substantial amount of capital in building these parts of the business.

Q: Can you share what amount is that?

Till date, we have raised 400 million USD across our lifetime and all of that is going to be invested.

Q: How much have you invested so far?

A: We have been very capital efficient. We have invested so far in building the infrastructure. We have invested maybe 20% of the total capital. But there’s again, we have only 5% market share so there’s still a long way to go.

Q: How much market share can you grab since it is still unorganized. Do you want to collaborate to bring those unorganized players on board by introducing your standards?

We have only 5% market share. So, clearly there is a long way to go. We are now scaling the consumer part of it; anybody can come and buy a car online. Today we are selling cars, which we own. But we are also working on opening this up for our partners like other vendors, other dealers to be able to sell the car to us as well. So, yes, we will be working with a lot of partners, we will always have our own assortment as well.

Q: How has the scrappage policy impacted because the lifecycle of petrol cars was 15 years, for diesel it came down to 10 years? It has a clear impact on the used car business. How do you take these changes?

I think they are good for the environment and work for the industry as well as cars that have a certain lifetime. There are so many technological changes from the market perspective also. Consumers are also changing their cars more frequently. The average holding time has been coming down, and events like this give it a further boost.

Q: Do you see any market opportunity in the used electric vehicle space?

I think the business we are in is a derivative from new cars. So as and when the new car market for electric vehicles develops, the used vehicle market for electric vehicles also will emerge, maybe with a lag of two to three years. So yes, from our perspective, we adapt to the changes in the new car segments which will also percolate down to the used car cases.





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