Auto sales have seen upswing and downswing in the past few months with car sales increasing between May to August this year and then seeing a slump during the festive period of September-October. However, it has picked up again by 5.4% in November 2014 which is said to be propelled by lower fuel prices and excise duty relief according to SIAM. At a time when the auto sales are on a rollercoaster ride, the used car sales have grown considerably. According to a recent report from research firm Frost & Sullivan, used car sales in the country equals new car sales. In some developed markets the ratio of new cars to used car sales is 1:3. Used car sales in last year were estimated to be 3.22 million in comparison with 2.68 million in new car sales, which is 1.2 times more. According to global market research firm JD Power recently in media report stated that the percentage of first-time car buyers considering purchasing used vehicles had increased to 17% in 2014 from 4% in 2011.
Reasons for used cars prolific growth
The new car segment has been facing a tough year despite brief glimpses of a revival in sales. Some analysts say that inflation as well as the high interest rates have not bode well for those interested in buying a car. This has resulted in people postponing new car purchases and instead going for used cars. Many of the young customers were purchasing from the used car market such as sedans and hatchbacks which are available at cheaper price and at similar quality, states JD Power.
Growth in Maruti Suzuki’s used car unit True Value was estimated to be 36% in the first half of 2014. While of Toyota’s was 20% increase in the past few years and Mahindra-Mahindra has seen a 20% year-on-year increase of it used cars according to a media report.
Another reason for this is the quality of used cars in the market today is much better than earlier. This is due to the shortening of the average lifecycle of car owners by around 3 years.
Vinay Sanghi, Founder & CEO of online auto portal CarTrade.com said, “The reason is the population of cars is going up. Secondly, earlier where people used to hold cars for 7 to 8 years, now people hold cars for 3 to 4 years. The actual ownership lifecycle is coming down. The average users are selling their cars over 3-4 years and that has enabled the business to grow”. He further said that the used car market is growing at 15-18% per year and that spends are from cities across the country.
This shortening in the lifecycle was also a point echoed by media planner Dinesh Vyas who said, “The ownership cycle has practically come down to 3 to 5 years. Which means that good cars are now available in the second hand market. So people who don’t really want to invest so much in a brand new car will of course go for second hand cars. People are opting for second hand cars more.”
Sanghi however did not agree with the fact that inflation and high interest rates played a part, but because of the low ownership of cars in the Indian market. “In India there are only 18 cars per thousand people, which is very low. Anyway the used car sales are going to grow. The number of people owning cars is very small in India,” he said.
With the average ticket size of Rs.3 lakh for cars in India most people prefer buying small cars. The used car market has two categories of players in the organised sector, which is estimated to be around 18%. One being the used car division of auto manufacturers such as Maruti Suzuki True Value, Toyota’s UTRUST and Mahindra’s First Choice. While the others are auto web portals or e-commerce auto aggregators which include players such as CarTrade.com, CarDekho.com, Carwale.com, Gaadi.com, etc. They have also been joined by ecommerce second hand buying and selling sites OLX and Quikr.
The emergence of this category in online car sales is as a result of websites that earlier used to give reviews and recommendations on cars that eventually started promoting car dealerships as well. Vyas explains, “In this category most of the homework is done through digital. Print of course tells you that the company has brought out a new model or new car but in terms of reviews consumer feedback, all that today happens through digital. Now to build on that, most of these people decided to become experts on this so all the online specific car digital sites used to first only do reviews. Then they found out that because they have an audience who are interested in this why not try selling to them the cars and that is how the transition happened. Be it even a Quikr, if you see their ads today they are now concentrating on car selling. So yes because they have an audience they are currently also promoting this category.”
Growth in ad spends
The increase in demand for used cars has brought to the fore specialised ecommerce car trading companies recently. To increase their presence in this market in the last one year they have started to increase their ad spends on media similar to other ecommerce sites. “Awareness is improving but a lot more work has to be done on it. But it has definitely improved now. About 80-85% people when buying a car prefer to go to the internet first. So I think all the advertising is helping us...We are in the business for the last four years but from last year to this year we have grown about 4 times over,” said Sanghi. With an expected growth of 15% year on year over the next 3-4 years he said, “In the coming year we will keep advertising in a large amount. Ad spends will be very high in media.”
A majority of that spends like all other ecommerce companies are expected to go to television. As Sanghi stated that every time they do a campaign they have seen around 70-80% jump in sales. “Television always has a good impact on consumers. That’s the only real national media where you can communicate to all customers across all cities and geographies. Print in India is very local as you know. So obviously television is the only national media,” he said.
Cardekho.com which earlier in the year was an associate sponsor for Bigg Boss season 8 was estimated to spend around Rs.8-10 crore according to media reports. This shows the level of ad spends that such auto ecommerce sites are willing to splurge in order to gain recognition in the market.
Though there will be an increase in the ad spends by the e-commerce car dealer segment, however the contribution is not expected to be that significant in comparison to the auto players.
As P.M. Balakrishna, COO, Allied Media said, “Yes I think (their ad spends will increase) but at the end of the day still their level of spends will not be to other auto companies or brands spends. Because they are aggregators and to the extent they want to be noticed as an option available they will do that. But certainly their ad spends cannot be to the extent of individual auto brands.”