Concerns Over Safety And Hygiene Speed Up Demand For Used Vehicles
The pandemic has pushed people to seek alternatives to new cars, thereby propelling growth for the players in the space
The used vehicle market in India has gained immense traction in recent years. According to Mordor Intelligence data, India's used car market was valued at $27 billion in 2020 and is expected to reach $50 billion by 2026, registering a CAGR of 15 per cent during the forecast period, 2021-2026.
Many startups including Spinny, CARS24, Droom, CarDekho, Carwale have been cashing on this huge opportunity. These startups are backed by deep-pocketed investors and have been raising multiple rounds of funding. For instance, Gurugram-based auto marketplace CarDekho is backed by Sequoia Capital, HDFC Bank, Hillhouse Group and Ping An Global Voyager and online automobile marketplace Droom turned a unicorn after a fund-raising round in July this year.
Spinny, a used car retailer, recently announced the closure of the Series D round of $108 million which was led by Tiger Global and Avenir Growth. In addition to these, the round saw participation from existing investor General Catalyst and others. Last year, it also acquired Mumbai-based used car marketplace Truebil. CARS24, an online transaction platform for pre-owned vehicles in India, also turned a unicorn in November 2020 and recently raised $450 million in a funding round led by SoftBank Vision Fund 2, DST Global and Falcon Edge.
“The auto industry in India is 7.1 per cent of the country's GDP and the used vehicles industry in India is a massive $100 billion market. The Indian car market is still at a nascent stage and underpenetrated in comparison to its counterparts of developed markets. In India, car ownership stands at a meager 2 per cent, creating a huge opportunity for the auto industry,” said Kunal Mundra, CEO Cars India, CARS24.
Additionally, the current financing market in used cars is at $2 billion and is poised to grow to $16 billion by 2023. “Only 15 per cent of the used car buyers get financing in India compared to 75-80 per cent for new cars,” said Mundra.
COVID-19 Accelerates Demand
Feasibility, a sense of ownership, little to no depreciation value are the key reasons for the demand for used vehicles. The increased concerns for safety and hygiene and the reduced cash flow have further pushed people to seek alternatives to new cars, thereby propelling growth for the players in the space. “Given the safety, social distancing and hygiene norms necessitated by the pandemic, all sections, including the youth, have realized the importance of safe personal mobility for every household,” said Niraj Singh, CEO and founder, Spinny.
Singh further added that over the past few years, even before the pandemic broke out, he saw more buyers preferring preowned category vehicles over new models. “The primary reason is the transparency and fixed price assurance provided by used-car players. As the used-car segment keeps growing, it’s undergoing a paradigm shift in how it operates and undertakes transactions. What’s significant is how players in the used-car segment have earned the trust of buyers within a short span with their transparent car buying/selling processes. Transparency in pricing has also ensured the rates are relatively affordable,” he said.
The other contributor to the segment’s overall growth is the desire of families to upgrade to a bigger vehicle or having more than one car within the household.
COVID-19 has surely further accelerated the demand. For instance, Spinny has been seeing a spurt in demand across multiple cities. For the eight months between January and August 2021, it witnessed a 236 per cent surge in sales across India compared to the same period in 2020; 11,600 versus 4,900, respectively.
Along with the used-car business, leasing too is trending in India’s mobility arena. Car leasing and subscription are fast catching pace as the new-age car buyer is getting younger and prefers changing cars frequently. “As compared to buying and maintaining a car for 24 months, a leased car for 24 months turns out to be extremely affordable and hassle-free. In these unprecedented times, car subscriptions hold immense potential as they provide hassle-free car ownership and also help save a huge amount of tax, resulting in a much affordable mode to commute,” said Tarun Lawadia, founder and CEO, PumPumPum. Launched in 2018, PumPumPum offers monthly subscriptions of INR 10,000 to INR 2.5 lakh for budget-to-luxury cars.
Digital Disruption And Further Growth
Digitization in the used-car space is one of the factors accelerating its growth. Backed by tech, the used vehicle market will only continue to grow rapidly in the coming years, believe the players in the space. Customers are now booking cars online, taking test drives at home and accepting deliveries at home too.
“About 80 per cent of our cars are delivered at buyers’ doorsteps after a home test drive. Also, doorstep evaluation and our institutionalized process for selling cars are helping people procure a good price for their vehicles,” said Spinny’s Singh. Spinny has observed 80 per cent of buyers opting for home test drives and scheduled test drives have been finalized with transactions happening online.
“Automobile e-commerce will gain traction as people now prefer to purchase used vehicles and platforms like ours are offering services such as home test drive and delivery of vehicles and digital processing with no paperwork,” said Sandeep Aggarwal, founder and CEO, Droom, an AI-driven online automobile marketplace.
Droom is also betting on the introduction of the vehicle scrappage policy which it believes will allow consumers to upgrade to a new vehicle sooner than before. “With every industry going digital, car buying will undeniably witness the transition from offline to online. And, we believe that online automobile marketplaces are welcoming digital shifts and it will further enable them to provide a diverse range of portfolios which includes the huge selection of vehicles, and end-to-end buying and selling services for customers, all this while reducing the capital required to operate a physical retail showroom,” Aggarwal added.
The preference for personal mobility and the demand for used cars is pushing startups towards growth and further innovation. This they believe will ensure that the demand curve doesn’t flatten even after things are completely back to normal.
Shanthi specialises in writing sector-specific trends, interviews and startup profiles. She has worked as a feature writer for over a decade in several print and digital media companies. She is also a mom who looks forward to playing a game of cards with her tween daughter every evening after work.