Auto-tech startups pave new road to growth even as sector suffers slowdown

The Indian car rental industry has grown at a CAGR of 24.6% during 2015-19 as new-age millennial consumers prefer experiences over ownership

The sentiment in the sector has been gloomy for over a year now. Several factors including the overall growth slowdown, new emission norms, and the weakening consumer confidence have forced several original equipment manufacturers to intermittently close production or cut jobs.

But some companies are surprisingly on a growth path. Auto-tech startups, which sell or rent old and new vehicles have seen their sales boom, and investors are queuing up to fund them. Many of these are online car sellers and some offer a range of after-sales service from tech support to insurance.

The crucial difference it seems is the marketing model. Most of these companies are primarily online. So, though the Society of Indian Automobile Manufacturers data showed sales of cars and vans falling by 27.02 per cent during April-October 2019 period, most of these tech-driven auto companies reported healthy growth.

CarDekho, an auto-tech start-up was based in Jaipur, has reported a 92 per cent jump in revenue in the first half of 2019-20, to $28 million. Its new auto business rose by 30 per cent during the year. Besides selling new and old cars, the company conducts inspections for old vehicles, offers financial services, insurance and warranty services. Insurance and warranty grew by 523 per cent year-on-year, while used car business saw a growth of 118 per cent and financial services grew 135 per cent, according to the company.

Online automobile marketplace Droom, promoted by Sandeep Aggarwal and headquartered in Gurgaon, is targeting a gross merchandise value (GMV) of $2 billion and net revenue of $55 million by end of 2019. Loans and insurance is one of the company’s fastest growing businesses. Droom also offers enterprise solutions such as fleet management and bulk insurance.

Similarly, Cars24, another online venture started by former co-founder of FabFurnish Vikram Chopra, posted a two-fold increase in revenues to Rs 1,687.7 crore in FY 2019, from Rs 670 crore a year ago. The Chennai-based startup sells 13,500 cars a month, on an average, across India. Its business model differs from peers as it focuses more on the supply side. It allows car owners to sell their vehicles, paying them almost instantly, post the necessary vehicular inspection. In October, the company closed a $100 million Series D fund. The money is likely to be used to scale the business from 50 cities to 200 by 2020.

The list of non-traditional car companies doing well is a long one. Chennai-based CarPal, an online new car selling platform, has seen 6-8 per cent growth this year. It sells multiple brands, unlike the brick-and-mortar dealers who have to stick to just one brand per showroom. The start-up has been seeing a double-digit growth year-on-year since 2017, when it pivoted its model to identifying a car model based on the personalised requirements of a customer from just selling cars.

The revenues of car rental companies are soaring too. Avis India, which offers all types of car rentals —self-driven, chauffeur-driven and long-term rentals— has said that its consumer business has seen a revenue growth to the tune of 20 per cent in the domestic segment and nearly 50 per cent in the international segment, mainly attributed to its tech-backed value proposition.

The Indian car rental industry has grown at a CAGR of 24.6 per cent during 2015-2019 as new-age millennial consumers prefer experiences over ownership.

“The fact that customers can drive the vehicles of their choice without having to worry about factors like car maintenance and making huge down payments is what drives the trend of car rentals customers,” said Sunil Gupta, MD & CEO, Avis India, which reported 20 per cent growth in the domestic market.

One thing that is helping these companies is their massive reach. These companies say that the whole consumer journey has moved to digital. Today, of the 26 steps in the journey of a customer from the time he decides to buy to delivery, nearly 22 points are now done through mobile and laptop, right from discovering and identifying a vehicle to making a choice.

Their growth has not unnoticed and dealers are tying up with online players,to complete their offerings. “Original Equipment Manufacturers also need the new wave of communication like digital to engage with their consumer and the online platform offers the engagement solutions to these companies,” said Ranjit Yadav, president and mentor at CarDekho.

“We see a lot more OEMs are working and engaging with us and a lot more dealers are doing the same as well. The consumer is now online. From an outlook point of view, we expect this momentum to grow strongly” he added.

These online players make buying or selling a car more flexible by filling in the gaps in certain areas like inspection of vehicles. There is a lot of demand for inspection services or loans, which is difficult to organise in the used car segment. 

CarPal is another such company that is built along the same lines of making car buying easy and more consumer-friendly. “Despite the slowdown in the market, we have been posting a growth in our business in the recent past. We deal with multiple brands and models unlike a dealer who can have only one brand in a store,” said Vignesh Ramakrishnan, CEO, CarPal.

He says customers in the age group of 30-45 would hit the internet first when they look to buy a car and this the group the company is targeting. It also brings the test vehicle to a consumer's doorstep, which is more convenient for them. Currently serving Bengaluru and Chennai, CarPal is now planning to expand to tier II and III cities.

For now, these start-ups seem to be garnering a lot of interest from investors. According to Venture Intelligence, five online vehicle marketplaces such CarDekho and Cars24 have raised around $178 million in 2019 from January to year-to-date, compared to $175 million in eight deals in 2018. (See chart) Vehicle tracking systems firms have shown investments going up to $41 million in four deals during this year compared to $6 million in two deals last year. For the traditional car dealer, change clearly seems to be on the horizon.