Change ahead in India's complex used-car market

CARY, N.C.  - 

When it comes to the used-car market in India, it’s a bit “complicated,” a report from shows.

There are 1.1 million used-car sales between consumers and other consumers each year, and then 2.1 million business-to-consumer sales divided between what the company called organized dealers (400,000), semi-organized dealers (500,000) and unorganized dealers (1.2 million), according to IBB’s report.

Additionally there are 100,000 business-to-consumer sales that trickle down from business-to-business remarketing sales.

Or, put simply: “The used-car market is complicated with various participants trading over 3.3 cars annually. The industry is largely unorganized with over 2.8 million cars transacted through semi-organized dealers and brokers or directly between customers,” IBB said.

But times are changing, says RMS Automotive general manager Zach Hallowell.

Not only is the overall automotive market in India becoming more organized and structured, the size and scope of the used market could be poised for growth.

‘That market’s changing’

Hallowell was in India for about a week last month, and presented at a used-car forum put on by Mahindra First Choice Wheels on Sept. 12.  The event, now in its fourth year, began with about 25 people attending in the Mahindra offices, but has grown to some 300 attendees, including the likes of used-car franchised holders, new-car franchised dealers and lenders, he said.

As the country’s automotive infrastructure and used-car market shows growth in coming years, Hallowell’s goal was to provide some best practices in light of these changing “dynamics.”

As it stands, ““They’re very much in a supply-constrained environment,” when it comes to used cars, he said. 

“The demand is there. For example, on the new-car side, the manufacturer sets the retail price of new cars; there’s no negotiation. (That’s) an indication that they have the power to set prices and hold to those prices,” Hallowell said. “And on the used-car side, turn is not a problem; it’s sourcing vehicles that’s the problem, simply because there aren’t enough vehicles in circulation.”

Additionally, he points out, vehicles are often passed down from family member to family member, so that means they often fail to reach the used wholesale market.

“But that’s today. And that market’s changing. As new-car sales grow, that generates trades with it and overall increases the size of the car park,” Hallowell said. “So my goal, partially, was to give them a glimpse of the future so they can think about how they set themselves up for success five, 10 years down the road when the dynamics of the market have changed.”

And it might not even be that long. According to IBB, the “organized segment” of India’s pre-owned market is expected to climb from a 12-percent share to a 20-percent share within a year.

‘Sense of order’

One of the changing dynamics to which Hallowell referred is that the automotive market in India is “organizing,” he said.

“And one interesting thing is that they’re very conscious of the organization of the industry,” he said. “They’re very explicitly trying to bring some sense of order to what was previously a very fragmented, very disorganized set of players.”

A market previously limited to consumer-to-consumer transactions or brokered dealer trades is now bringing in online auctions, inspections and valuation guides, he said. The auto industry has been very deliberate about studying the more mature markets.

Hallowell’s goal with the presentation was, as the market continues to develops, to emphasize the “importance of thinking through the data that is collected in that to help understand what you’re doing and also to make the best decisions for your portfolio.”

He honed in on residual values as a point of emphasis. Focusing on these can open up opportunities like leasing, for instance. Understanding residuals helps paint a picture of “dynamic relationship between your wholesale residual values and your new-car sales.”

“Because as we see here in the U.S., when you have strong residuals, that allows you to lease vehicles” and prevent vehicles from being underwater on repossessions, he said.

The lease market is in “formative stages” at this point in India; however, the captives and non-captives have shown interest, he said. But there has to be a “foundation” first.

“And a lot of that is in data and understanding what the cars are that you have in your portfolio in order to be able to do that effectively,” he said.

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