Used car dealers spend heavily on advertising as market tipped to grow rapidly
The automobile industry on an average is growing in single digits but the pre-owned car market is growing at more than 15% per annum
Published - 19-February-2019
The craze of purchasing used cars is witnessing an upsurge as compared to the desire to buy new cars in India. India is the third largest automobile market in the world, worth close to $300 billion. After e-commerce, India is emerging as a nation that is attracting the most amount of car buyers in the globe.
Despite many products launches in the passenger vehicle segment, the auto sector saw no cheer during the last festive season. But, the used car market is growing at a tremendous pace.
As per the data by Society of Indian Automobile Manufacturers (SIAM) released in 2018, at nearly four million used cars the used car market is 1.25 times bigger than the new car market that saw sales of 3.2 million units last financial year.
Also, CRISIL in its report stated that almost two in every three cars sold in the country are used cars. It further said that the used car market will grow at a steady pace of 15 per cent until 2020.
The major reason behind the growth of the used market could be seen as its table turning into a much organized place, and the emergence of new players in the market. CarDekho, OLX, Droom, CARS24, Mahindra First choice and others have shown that there is a lot to do in the market.
As the market is on a growth period, it has been noticed that the brands are spending high on advertising to connect with the audience well.
CarDekho incurred advertising expenses of Rs 62 crore in 2016 while CarTrade and CarWale together touched the advertising and promotional expenses to almost Rs 161 crore. Droom spent Rs 20.6 crore for advertising and marketing alone in 2016. Droom last year, allocated 400 crore marketing budget, out of which 150 crore is slated to be spent on digital medium.
But why the used cars are turning out to be a better bargain for consumers as compared to new ones? According to Sunny Kataria, Vice President - Auto Category, OLX Group, “Pre-owned cars offer a distinct pricing advantage versus new ones. Data from our platform suggests that pre-owned cars can be almost 20-30 per cent cheaper as compare to the new ones. We came across a trend where users are selling their almost new cars which are barely a year or two old on OLX at a significant discount. Frequent car launches have also made it attractive for users to switch cars.”
To expand its business, OLX last year announced its offline expansion in the used car market and has plans to set up 150 outlets in 40 cities across India by 2021.
We reached out to brands and asked them why they are spending big on advertising and what is the opportunity in this sector. Sandeep Aggarwal, Founder & CEO, Droom explained, “In the used segment, only 15 per cent of the cars are sold through the organised channel such as Cars24, CarNation, Mahindra First Choice etc. The remaining 85 per cent is the part of unorganised sector. Whereas for two-wheelers its almost 100 per cent organised. In the online segment, we are leading most of the online automobile transactions happening on the platform and for offline it’s a combination of Mahindra First Choice, Carnation, Maruti True Value, CashMyCar, Cars24 etc. So looking at the huge opportunity the spend on advertising is completely justified given that India automobile industry is worth 12 per cent of India’s GDP.”
Aggarwal believes, the opportunity is massive at this current point in the used cars. “The automobile industry on an average is growing in single digits, and the pre-owned car market is growing at 15 per cent + per annum. In 2018, the passenger vehicle market recorded sales of 3.4 million units while OLX alone sold about 3 million cars,” he explained.
According to Gajendra Jangid, VP-Marketing, Cars24, the opportunities are huge. The used car market is pegged to grow at 15% CAGR and is touted to be an over $100 billion market by 2025, he said. “The sector is getting more and more organised with new-age tech companies helping consumers with the right set of data to make decisions. This is leading to a high confidence index on used cars than ever before leading to buying/selling of used cars much more friction-less and transparent. I feel in coming years, consumers will buy used car with as much confidence as a new car,” said Jangid.
According to M Sathiyanarayan, Head - Marketing, Mahindra First Choice Wheels, “Advertising in the used car industry should be seen inthe context of the structure of the industry. The advertising spends are also emerging from players who are trying to create brand recall in their respective domains”.
Kataria revealed, “OLX occupies 77 per cent of market share in India’s pre-owned car market out of the market size of 3.8 million units, a large chunk of the car business sellers still sells offline.”
Sharing a regional break-up of the car listings, he said, “55 per cent of sales come from tier one markets. The remaining 45 per cent from tier two cities.”
According to a media report, Mahindra First Choice has seen 40-50 per cent growth over last year. Small SUVs have registered a tremendous growth rate over recent years, which is expected to record the highest sales growth in the used car market till 2023.
With 50 per cent growth in the last year, how do experts see the industry flourishing five years from now? Aggarwal said, “We are a part of an automobile sector which is 12 per cent of India GDP or $300 billion annual worth industry. But out of this $300 billion only $1.25 billion is online. In the next 5 years, we think this $300 billion will become around $450 billion worth industry and the online share will go up to $20 billion.”
Sathiyanarayan, shares, “Used car industry in India is still in its nascent phase with only 15 per cent of the industry being organised. We believe that migration from two wheelers to four wheelers is going to happen through used cars, which means the industry will attract a lot of first time buyers.”
Kataria stated, “The industry will evolve at a much rapid rate akin to the developed markets. Offline sellers will throng to online marketplaces to offer their products and the consumer journey will become more seamless. The industry will evolve to offer ancillary products such as insurance and financing as pre-owned car marketplaces become a one-stop shop for all the consumer needs."For more updates, subscribe to exchange4media's WhatsApp Channel- https://bit.ly/2QUdLCK