Skoda to enter pre-owned car business

In a bid to shed its premium tag and shore up volumes, Czech car maker Skoda is working at entering the pre-owned car business by the end of the financial year.

The move comes on the back of automobile companies increasingly attempting to expand volumes in a sluggish market by initiating new customers into their brands through pre-owned vehicles and retaining older ones through loyalty programmes.

"We are working on putting in place a comprehensive growth strategy to penetrate deeper into the country with our range of products. We will not trigger discount wars to boost numbers but we are working on entering the pre-owned cars business to introduce more customers to our brand by the end of the year," said Sudhir Rao, managing director, Skoda India.

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While the specifics of the used-car business are still being worked out, Skoda is ramping up efforts to expand overall reach by setting up 150 dealerships by 2014-15. The company has 102 outlets at present.

Though the Indian subsidiary at present contributes a little over three per cent to Skoda's sales globally, Rao said the company was infusing Rs 300 crore (Rs 3 billion) to improve localisation content in its products and reduce cost of ownership to raise volumes "substantially" in the country and to achieve sales tally of 1.5 million units worldwide by 2018.

Automobile manufacturers are increasingly focusing on sales of pre-owned vehicles to expand volumes in a market where offtake of new vehicles have waned due to high interest rates, fuel prices and uncertain economic conditions.

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An industry expert said: "The pre-owned car business units not only provide dealers with opportunities to improve margin by selling used cars, the company additionally registers sales of new vehicles through exchange programmes."

For the quarter ended June 30, Maruti Suzuki expanded volumes by 18 per cent to 60,467 units in sales made under exchange programmes despite the sluggish sentiments in the domestic market.

"In urban areas where demand has fallen sharply, we are trying to push sales through our loyalty programmes. Around 1.5 million customers service their vehicles every month, 10 per cent of whom own vehicles which are more than 10 years old.

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"We identify these consumers and offer them loyalty bonus to exchange their cars for new ones," said a senior executive at Maruti Suzuki.

Additionally, the company registers sales of pre-owned cars. The used car market in India stands at 2.7 million units, however, over 85 per cent of it is currently controlled by players in the unorganised sector.

But the convenience and warranty being offered by companies like Maruti Suzuki, Hyundai Motor India, Mahindra and Mahindra and Ford India are increasingly making consumers opt for purchase and sale of pre-owned vehicles through the organised route.

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The Maruti Suzuki executive added: "Around 30 per cent of car buyers exchange old vehicles for new ones. At Maruti True Value, we not only help customers in completing documentation work for transferring old vehicles, we repair and offer warranty on pre-owned vehicles. It helps in retaining as well as introducing new customers to our brand."

The company currently has over 420 outlets through which it sells pre-owned cars. In the last financial year, Maruti Suzuki sold as many as 240,000 pre-owned cars which is nearly a quarter of its overall sales of new vehicles.

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Hyundai Motor retailed pre-owned vehicles amounting to 15-16 per cent of its sales in the domestic market through Hyundai Advantage outlets last year.

The Korean car major sold 84,000 pre-owned vehicles last fiscal. Mahindra First Choice, which has 171, outlets is looking at selling 45,000 pre-owned cars this year, an increase of 33 per cent over the 34,000 units sold last year.