Unorganised players in used car market pose threat to consumer protection: CEO, MFC
The Indian Used Car Market is less than even 10% in size to that of the US used car market. The US used car market with 45 million cars is flush with a lot of money.
MUMBAI: The used car industry in India has a long way to go before it matures, presently being dominated by the unorganised sector. There is not much scope for consumer protection, the industry needs to get created in a more formal sense said Nagendra Palle, CEO and managing director, Mahindra First Choice in an interview with Pratik Bhakta.
Where does the Indian used car market stand today?
I think the used car industry in India is at its nascent stage and has a long way to go before it matures. Since it is dominated by the unorganised sector there is no space for consumer protection. The regulatory environment around used cars is weak. I think the used car market needs to get created in a more formal sense. The organised sector, where we play, is still very small in comparison to the size of the market.
What is stopping the industry from maturing?
The Indian used car market is less than even 10% in size to that of the US used car market. The US used car market with 45 million cars is flush with a lot of money. Each car on an average might cost between 12,000 to 15,000 dollars and then with a margin of 8 to 10% the dealer makes huge amount of money even in dollar terms. Whereas in India with only 3 million used cars in the market and on an average an used car being priced at Rs 3 lakhs, a margin of 8 to 10% is not equally rewarding. Moreover with high cost of capital, high rentals the dealers are usually not left with much of a disposable income. This also prohibits adoption of latest technologies for payments, bookings etc.
Where does Mahindra First Choice stand in this market?
This year we at Mahindra First Choice have sold some 85,000 vehicles through our dealer network and that is still a small fraction of the 3 million used cars that are sold annually in the country. Even though we are growing fast, the percentage share of used cars sold through the organised sector continue to remain low. Thus the formal channels still need to be established to allow the industry to grow and mature. The margins have to improve, there needs to be more volume and more money per car and then only we can talk of the services that can be sold into the system, be it online or offline.
Tell us about Mahindra First Choice`s latest online ventures.
We are not exactly in the classifieds space, our website is mostly about inventory and we get very high quality leads. In fact our conversion rate is highest in the industry and that is also because of the brand name that we own. In the online space we also have Indian Blue Book. In India with only 3 mn used cars in the market and on an average priced at Rs 3 lakhs, with high cost of capital, and high rentals the dealers are usually not left with much of a disposable income. That is not a classifieds site but it is meant for consumer awareness and consumer protection. We have a large number of OEMs, bankers on our website. We also have an online auction platform ediig.com for the B2B auction marketplace. We collect a lot of data and then build an analytical model which can provide pricing guidance.
You have spent 3 years in India now, how have you seen the used cars market changing?
I personally feel this space has doubled over the last 3 years. A lot of money has gone into the system. The industry is flush with money. The awareness about buying and selling used cars has increased through these advertisements and publicity. I think this is good for the industry in general.
What is your strategy going forward with Mahindra First Choice?
Our whole focus is now on the franchisee business and dealer profitability since we already have a very strong brand under the Mahindra name. Now that we have spread across 300 towns with almost 330+ dealers, we are targeting to get around 730 to 750 dealerships by the end of this fiscal year. We have recently launched `D` category dealerships in towns like Ojhar in Maharashtra, Kumbakonam in Tamil Nadu and Buxar in Bihar. These dealers would sell around 3 or 4 vehicles every month, mostly passenger vehicles.