In the past two years, online used car retailers have been recording exponential growth fuelled by the pandemic-led customer demand and supply chain constraints extending delivery timelines for new cars.
The two years of the pandemic saw four used-cars retailers — Droom, CarDekho, Spinny, Cars24 — turn into unicorns (valuation over $1 billion). These companies also invested aggressively in opening refurbishment centres and expanding geographically. Moreover, one of the established used-car retailers, CarTrade, also launched its IPO in 2021.
Now, as the macro-environments change and supply chain constraints start to ease up, companies are turning the focus on profitability and reducing cash burn. In October, Droom even withdrew its proposed IPO listing amid tough market conditions. Whereas, the listed CarTrade saw its stock price dip by almost 46 per cent between December 2021-December 2022.
In May, Cars24 fired 600 employees across departments which were referred to as annual performance-linked exits. Later in August, CarDekho also fired employees across junior and mid-senior levels as the used-car marketplace turned its focus to profitability. These were also referred to as performance-linked exits.
Slower growth in 2023
Analysts now estimate that the demand for the used-cars segment might be slightly slower than last year, as the companies tackle the challenge of maintaining a constant supply of used cars, among other things. “I think there will be growth in this segment but it could slightly slow down. The reason being there’s only so much they can extract from the cities they are currently operating in. Also, in used car retail, supply is a big challenge. Only if you have used cars, can you sell it ahead,” Kushal Bhatnagar, Engagement Manager, Redseer Strategy Consultants told businessline.
He added that with companies’ growing focus on quality, the pool of available used cars is also shrinking. They have to focus on good quality cars within the age range of 4-10 years because cars more than 10 years of age cannot be sold and cars which are less than 4 years and under warranty won’t be put up for sale by the owners. How these players build that supply up is one big question that remains.
“Over time people in metro cities will move towards new cars. So how these players are able to scale up into tier-2 cities and beyond, that’s also another question. The demand can potentially be more in tier-2 and beyond cities rather than top cities. Those are the markets where, generally, affordability is a factor and people are okay with buying used-car as their first car as well. In metro cities, people mostly have a usedcar as a second car. I believe that challenges exist, especially to build a consistent supply,” said Bhatnagar.
Supply chain constraints
Talking about whether easing our supply chain constraints have impacted used-car sales, Niraj Singh, Founder & CEO of Spinny said, “The automotive industry has been recovering from a period of material shortages, under-utilised production capacity, and supply chain constraints due to Covid in the last two years. Managing a supply chain, however, has taught the entire auto industry many valuable lessons and created a demand spillover for the used car market. We have seen a sustained shift in car ownership to pre-owned vehicles, which offer more value for money.”
Adding to this, Bhatnagar said that, “supply chain easing out does not have much impact on the demand for used cars. From a consumer psyche perspective, buyers are not thinking of buying a used car because they cannot get a new car. Only a very small cohort of customers think like that. People who are buying used cars, usually want a second car in the house and these people would go for a used car even if there is a new car available. So that’s one segment of the population which doesn’t get impacted at all.”
Market Opportunity
The Indian used car market was valued at $32.14 billion in 2021, and it is expected to reach $74.70 billion in 2027, registering a CAGR of 15.1 per cent during the forecast period (2022-2027) as per Mordor Intelligence report.
The market share of organised online used-cars retail players is still very limited in the overall used-cars market in India. Unorganised transitions continue to make the majority market share. According to the Society of Indian Automobile Manufacturers (SIAM) data, 3,069,499 passenger four-wheelers were sold in 2021-22 and the used car industry is a multiple of new car sales.
According to Cars24 co-founder and CFO Ruchit Agarwal, In India, the typical multiple for used-car sales would be around 1.4 - 1.5x of new car sales. He added that in countries like the US and Europe, this multiple of used-car sales is 3x, and in China, it is closer to 2x. The multiple has also increased in India as our economy progressed in the last decade and the social taboo related to used cars faded away. Also, the pandemic made people realise that they need to solve their personal mobility instead of relying on a public mode of transportation.
Singh also resonated with this and said, “The pandemic has taught a lifelong lesson to the consumers of owning personal mobility at home. Post the pandemic, consumers have become more self-reliant due to safety concerns and prefer to avoid the hassle of public transportation. The used car market has witnessed an increase due to the affordability, pricing, transparency, and variety of options available. Moreover, the ecosystem that the used car market offers makes it easier for buyers and sellers to go through the process smoothly.”
Singh added that Spinny has witnessed 60 per cent first-time buyers in 2022 and most of the first-time car buyers are buying due to the unreliability of cabs. With 32 per cent of buyers being women there has been a constant demand from this segment, he added.
Spinny joined the unicorn club in December 2021 with a $283 million funding round led by ADQ, Tiger Global, and Avenir Growth. In FY22, Spinny reported ₹490 crore in losses, which is a 4.4x jump from ₹110 crore loss reported in FY21. The company’s total revenue also surged 4.5x to ₹180 crore from ₹39.7 crore in FY21.
Competition
Talking about the competition in the used-cars market, Cars24’s Agarwal said, “There are around 50 lakh used cars sold in India today, and the number is expected to reach 1 crore in the years to come. So it is huge and without commenting on the market share, we are still very tiny relative to the used car market in India even though we are one of the larger players. This is to say that the market shares are still tiny for all players. There is huge room for all online used-car retailers to grow and even coexist.”
In the festive month from September - November 2022, Cars24 sold almost 10,000 cars and the company has an average selling price of ₹5.5 lakh. Softbank-backed Cars24 closed a $400 million funding round in December 2021 at a valuation of $3.3 billion which almost doubled the valuations from its previous September 2021. The company has reported an 87 per cent year-on-year jump in operational revenue to ₹5,136 crore in FY22 even as net loss widened to ₹248 crore from ₹191 crore in FY21.