On the sidelines of the Paris Motor Show in October, French car maker Renault made two key announcements for India. It said it would enter new product segments and mark its presence in the country's used-car market.
It is the second announcement that could signal a new turn for the company that has missed its sales target in the four years it has been present in India. As sales of new cars remain sluggish, the second-hand market is increasingly turning into a welcome source of revenue for car markers. The prudence of having a used-cars division has already been realised by Volkswagen, Ford, Toyota, Hyundai, Maruti Suzuki, and even by luxury car makers BMW, Audi and Mercedes-Benz.
The used-car facility helps a company introduce its brand to a customer even when a new car is beyond his reach. According to a Delhi-based analyst, 40-45 per cent of car buyers are below 30, and are looking to upgrade from a two-wheeler to a hatchback or even a sedan. The target customer for a used car comes primarily from this segment.
For the country's second-largest car maker, Hyundai Motor, of the 380,253 new cars it sold last year, a significant chunk was to customers who had either owned or driven a used Hyundai car before, says a company executive. Hyundai, which has maintained steady 20 per cent sales growth over the past five years, sold 70,000 used cars last year, many of them to first-time buyers.
Maruti True Value, which was launched way back in 2001 to sell company-owned used cars, has also been a significant contributor to sales of new cars. Its network of 454 outlets across 260 cities helps draw customers from all over the country. "More than profits, the idea for any manufacturer is to draw and retain customers from the time he is ready to buy a car. It opens up the option of going back to him after two-three years when he is ready to upgrade to a new car," says a senior executive of Maruti Suzuki India.
To tap this market, companies offer certified pre-owned cars complete with multi-point scrutiny with attractive discounts and freebies. They also keep a check on the after-sale service.
Rakesh Srivastava, senior vice-president (sales & marketing), Hyundai Motor India, says, "Many used car customers are upgrading to higher-end new car models because of product quality and reliability."
The used-car business is 1.3 times bigger than the new-car market and growing at a faster rate, says former Maruti Suzuki managing director Jagdish Khattar, who now runs multi-brand car services company Carnation Auto. According to rough estimates, almost three million second-hand cars were sold in India last year compared to the 2.5 million new cars.
To a large extent, the used-car space is immune to demand fluctuations. Nagendra Palle, chief executive, Mahindra First Choice Wheels, the largest multi-brand player in the segment, says, "The impact of the economy on the used-car industry is more muted than for the new-car industry because in the used-car business, volumes are generated by cars changing hands as well. We believe the slowdown in new-car sales has affected the used-car industry, and growth has slowed from about 22-25 per cent in earlier years to about 18-20 per cent now. However, we experienced a growth rate of nearly 30 per cent last year." Mahindra First Choice Wheels, which has 390 outlets, sold about 56,500 vehicles last year. It expects to sell over 70,000 units this year.
However, the market is still undeveloped. A large part of the sales is done through friendship circles, within families or by roadside dealers. The organised sector accounts for only 18 per cent of the market compared to 11 per cent five years ago. For new players like Renault, this leaves enough room for growth.