Start-ups. Steering used-cars sellers onto the profit lane

When 30-year-old Vishal Sangwan, a chartered accountant with a major FMCG company, decided to buy an SUV, he opted for a pre-owned one. “The waiting period for a new one was 13 months. I didn’t mind buying a pre-owned vehicle. I was lucky to get it at a great price, too,” he says. Like him, many of the younger buyers today are happy driving a second-hand automobile.

Last year, for instance, as against 3.8 million new cars, 4.5 million used cars were sold in India and this number is projected to jump to 8 million by FY27.

The sale of used cars heated up during 2021 and 2022 as new cars were taking longer to roll off assembly lines with supply chains hit by the Covid-19 pandemic and the Russia-Ukraine war.

Yet the sector has not attracted much funding. From a high of $2 billion in 2021, funding has whittled down in the following years. At $3.21 billion, Cars24 is the most valued company among used-car sellers. The only other unicorns in this segment are Spinny and CarDekho, with valuations of $1.6 billion and $1.2 billion, respectively.

Used-car sellers are now focusing on generating additional revenue from ancillary sources such as auto financing, insurance, and classified ads.

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New-age platforms such as Cars24, Spinny, CarDekho, and Droom are relying on tech-based solutions to tap into the largely unorganised market for used cars.

First car, used car

Organised players aim to increase their share of the used-car market to 45 per cent from 20 per cent over the next five years.

By then, two in every three cars sold will be pre-owned, says Niraj Singh, founder and CEO of Spinny.

A growing chunk of his customers are first-time buyers, who accounted for 63 per cent of sales between August and October 2023, up from 57 per cent a quarter ago, he says.

Bengaluru, Delhi National Capital Region (NCR), and Hyderabad have emerged as key markets for Spinny, which operates 57 car hubs and experiential parks across 22 cities, with space for over 12,000 cars.

The company sells over 6,500 second-hand certified cars each month, at a minimum price of ₹4-6 lakh each; 80 per cent of the buyers currently opt for petrol cars.

“This includes luxury cars like Mercedes, BMW, and Audi. We are now eyeing over ₹350 crore monthly sales revenue. We plan to open more Spinny parks in western and eastern cities this year,” Singh says.

The Tiger Global-financed company, however, shut down its standalone sales portals for premium cars and budget vehicles, laying off around 300 people in the process. It plans to offer all products and services on a single platform rather than splitting inventory across multiple platforms.

Diversified revenue

SoftBank-backed Cars24 wants to focus on its existing outlets rather than opening any more. Besides India, the company has operations in Australia, Thailand, and UAE.

It reported a revenue of ₹5,553 crore in FY23. Its gross margins improved at 3.6x rate, to 11 per cent from 3 per cent in FY22.

In addition to used-car sales, Cars24 is paying more attention to value-added services like financing and insurance.

In 2019, it launched Cars24 Financial Services Pvt Ltd (CFSPL), a non-banking financial company focused on financing used-car buying.

“Earlier this year, CFSPL achieved 100 per cent year-on-year growth in enabling loan disbursements, crossing the ₹2,000-crore mark,” says a company spokesperson.

Its venture into newer businesses such as car servicing and car scrapping is meant to build a supportive ecosystem for owners and potential buyers of used vehicles, the company says. Its car scrapping services, launched initially in Delhi NCR, will soon be available in other cities, it says.

Tech-tonic shift

CarDekho closed its retail used-car outlets and customer-to-business (C2B) segments after about two and a half years, as they were losing money, and wants to focus instead on the classifieds and insurance verticals. It reported 46 per cent revenue growth in FY23 on the back of strong performance by its insurance unit, InsuranceDekho, and fintech platform for car financing, Rupyy.

Droom, too, is pivoting to new market segments through its software-as-a-service (SaaS) offerings for original equipment manufacturers (OEMs) and companies in the banking, financial services and insurance (BFSI) sector.

Its venture Droom Fintech is working with leading OEMs to bring to automobile buyers the “largest assortment of new vehicles with paperwork, loan and insurance, delivered at the doorstep”, says Sandeep Aggarwal, founder and CEO, Droom.

Electric vehicle (EV) sales are on its radar too.

“Droom is building the country’s largest, most scalable and low-cost transaction platform to make EV adoption ubiquitous,” he says.

Deceleration ahead

Analysts blame the slowdown experienced by the new-age sellers on curtailed spending, even as the broader market for used cars continued to grow in India.

Demand for new cars is also on the rise. Domestic passenger vehicle wholesales (despatches to dealers) in October grew 16 per cent year-on-year to 3,89,714 units, from 3,36,330 units a year ago.

“In 2020 and 2021, the growth [in car sales] owed to heavy spending on marketing, advertising, and expansion into newer markets… and this was largely due to easily available capital, which is no longer the case,” said an investor requesting anonymity.

“But there’s still a large room to grow… that will happen over time as consumer behaviour changes,” he added.

“Major start-ups in the used-car segment are shifting their focus to unit economics instead of rapid expansion, which reflects a strategic decision to prioritise sustainable growth and financial stability,” says Neha Singh, co-founder of Tracxn.

The road ahead, she says, entails utilising digital platforms for services like online car inspections, transparent pricing, and efficient transactions to enhance customer satisfaction and trust, and, in turn, business volumes.