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Market for Used Cars in India

Nakul Kapur 1 Stories

Thursday April 20, 2017,

5 min Read

Introduction

The market for old cars is 1.2 times the market of new cars. Does that sound strange? This statistics is from IndianBlueBook on pre-owned car market.

This post is my first hand experience in buying a Toyota Corolla Altis in Delhi NCR. I was looking to buy a second hand car in the budget of INR 4lac – INR 6lac. The first thing to do was to do a Google search and find out the options available online. I came across 5 platforms on the first search page of Google namely; Cartrade, Carwale, Olx, Cardekho, Quikr.

There are quite a few others like Droom, Mahindra First Choice, Maruti True Value etc.

The interesting thing is that 60-70% of the cars across platforms are the same because it’s the dealer network that drives the major market of used cars. Only 12% of a used car market is organized. The used car market is pegged at INR 96,000 cr growing steadily to touch Rs 2,50,000 cr by 2021. Imagine the opportunity! Lets study what these multi-million $ funded startups do:

C2C Platforms

Quikr and Olx work on a customer to customer (C2C) model where a customer looking to sell an old product uploads photos of the car, sets a selling price and furnishes some basic details (not compulsory) related to the car like Kms driven, features etc. For somebody looking to buy a second hand car, this information is of little use. Moreover, approx. 7 out of 10 cars even on a C2C platform are uploaded by the dealer only. This you would get to know after talking to the person on the other side.

Other Online Platforms

All the online platforms have signed up with a set of dealers across the city. The dealers have their own offline network from where they source cars. Thereafter, these online platforms get the cars checked by their technicians. The technicians may or may not be on the company’s payrolls. The check points include;

• Engine

• Suspension

• Brakes

• Transmission

• Electrical

• A/C

• Exterior

• Interior

• Tyres

• Accessories

And then there are broad details under three subheads of features, specifications and overall view of the car. Platforms also add their ratings and reviews for some important points which gives a good idea about the car atleast on paper.

The dealers upload the inventory on the platform which is made visible to the prospective buyers post the above checks are done. An interesting observation here is that I haven’t encountered any platform that does a verification check by the OEM/ car manufacturer/dealer. Atleast I couldn’t find that information online or from the dealer.

Lemons Problem

It is obvious as day light that the most authentic information about a vehicle can come from the OEM/Car Dealer/OEM’s dealer’ service center. The service center would have all the information related to servicing, accidental damage, parts changed etc. This information will not be available in the cases where the car has been serviced from an unorganized service center and hence, the car price should adjust accordingly which doesn’t happen.

Another interesting observation while looking for a Corolla Altis was that 90% of the cars were driven around 55,000-70,000 Kms. Whenever I discussed with the dealers or checked with OEMs, there was some hidden information that came up. For e.g. The KM meter had been changed. As a buyer of a second hand car, I can never trust the dealer or the platform on anything if even one thing is hidden. Fair?

It is the classic theory of the ‘Lemons Problem’. There is information asymmetry wherein dealers/car owners know much more about the car than anybody else. So how do you deal with it?

A friend suggested, My Spinny which is a managed market place wherein they do all the checks in-house and do a verification with OEMs as well, however, this information is also not updated on their website. I got to know this when I checked with them. They are able to do this may be because of the small scale but it makes complete sense to do all of this if you have to remove information asymmetry.

Honestly, all the platforms do a very good job with the information they have in-terms of inspection, verification etc. but I believe they should invest more into removing the incomplete information for people to trust their platform.

Some of the suggested areas of improvement could be:

• Car servicing report by the OEM/Dealer

• Strict check on the dealers and information shared by them

• Make services like Orange Book Value by Droom more robust and transparent

• Invest in creating hubs; managed market place is better than a pure marketplace

A used car marketplace is more of an offline to online business than a pure play technology business. Companies invest millions of dollars in hiring ‘00s of technology and product people while in my opinion, their investment should be more in the offline space.

Nobody would care about the UI/UX if they have one bad experience or they hear about it from a trustworthy source. Why not solve the Lemons problem?

I sincerely believe that the dealers deserve to make as much money as the platforms# but this incomplete information thing has to go for the market to grow and people to vouch for such online platforms.