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Auto majors get into the second-hand act

Surajeet Das Gupta

Buying or selling a second-hand car is going to be whole lot easier from now on. And to help you out, for the first time auto manufacturers are themselves entering the field.

Car companies ranging from Maruti Udyog Ltd, Hyundai Motors, Ford India and Honda are aggressively moving in to grab a part of the lucrative over Rs 60 billion unorganised second-hand exchange market.

Industry estimates vary on the size of the second hand car market-while some like Honda estimate it to be the same size as that of the new car market (600,000), others say it is over 300,000 a year. Another estimate: in the lower end market (primarily Maruti 800) there is one car exchanged for every two new cars sold, while in the higher end (Esteem and above) the ratio is virtually 1:1 (for every new car sold there is one second-hand car which changes hands).

The key, of course, is the fact that with aspiration levels going up, customers are also moving up on the value chain of cars. While earlier customers used to change their cars after 15 years or more, nowadays customers on an average change their cars after 3-4 years. "And this change in the market provides an inherent and growing market for second hand cars," says a top executive of Honda which has started selling second hand cars as well as offering new cars in exchange of old ones in a pilot project.

Of course, the most aggressive player in the business is Maruti, which sees it as an independent business altogether. Come November, the company is set to launch its pre-owned car strategy, which eventually will be taken up by all its dealers. Says a senior executive of the company: "We see it as a profitable new area of business. And at the same time it will represent a sea change in the assurance we give to our customers-that they will get the right value for their car when they seek to sell."

Maruti car owners will be able to walk into any of the dealer showrooms with their old car, get it valued by expert valuers based on transparent parameters and receive cash or buy another car from the Maruti fold in exchange for the old car and pay the difference in cash or take a loan.

The second hand cars will then be refurbished and offered to customers with a Maruti warranty, which could be of six months with three free services thrown in. "Dealers will get a new source of income and as a company we expect our customers to stay within our fold."

The new strategy also fits in with Maruti's overall attempt to transform itself from a mere car manufacturer to a car services company which will provide insurance, finance, leasing of cars and fleet management to customers.

Says the Maruti executive: "For instance, in the lease fleet management business for companies, the cars will be used for three years after which they will be sold through our second-hand car network, so there is a clear linkage between the two businesses. If customers of second hand cars want finance, we will provide that also."

Korean car maker Hyundai sees the second-hand car business as a way to provide customers with a one stop shop for all their requirements. Points out BVR Subbu, executive director of Hyundai: "We have just started a pilot project under the brand 'Hyundai Great Exchange' in Bombay and Madras which is aimed primarily as a one stop shop for our customers. If successful, we plan to extend it slowly all over the country."

Hyundai has tied up with AutoMart, a company, which specialises in used cars, to administer the programme. And unlike Maruti, it allows customers to walk in with any brand for exchange with a Hyundai. This is because the numbers of old Hyundai cars are limited as it is a relatively new entrant.

AutoMart introduced the exchange scheme in May with five Hyundai dealers in Bombay. As many as three of them have decided to continue with the programme. Says Jitendra Mali, senior manager at Auto Mart and based in Bombay: "The response has been good. We have already exchanged 30 cars in one month."

Mali says that after refurbishing the cars, the company offers the car to customers with two warranty schemes: a comprehensive warranty scheme for 6 months or up to 10,000 kilometres and a special warranty for engine transmission. It also rates the old cars in categories of three, four and five stars, which provides the customer with an assurance of the quality of the car.

To ensure only quality second hand cars are sold, Ford India goes even further with its 'Ford Assured' scheme. In this, customers can bring in any car make for sale, which will be valued on the basis of a 116 point check list by Ford dealers. That apart, it rejects all cars, which are over 3 years old or have travelled more than 50,000 kilometres. "We have imposed strict controls on the quality of the second-hand cars, so that the fleet we get is of high quality."

Of course, the cars sold are backed by a one-year warranty, three free services and offer of Ford credit in case the customer is keen to finance the car. Says the Ford spokesperson: "We see it as an independent profitable business and a way to convert a lot of non-Ford buyers into our fold."

But all this does not mean that customers are moving en masse to the car companies to sell their cars and forsaking the private broker.

Admits a senior executive of Honda which recently launched the 'Trade in Activity' scheme to assist customers to exchange their old car for a Honda City: "Initially, customers are not very confident that they will get the right price and will always go to brokers to check up what they offer. It will take them time to understand that we are giving them a fair price and also not charging the 2 per cent commission which brokers charge."

Honda is able to exchange only 30 to 40 cars a month through its 5 dealers who run the scheme and admit that the response is nothing to talk about. But it is confident that with the launch of the Accord, the numbers will go up dramatically, especially as it offers prices for the second-hand car which are at least 15-20 per cent higher than the brokers.

A problem, of course, is that second-hand cars sold by the companies come with a premium ranging from 5-10 per cent of what is offered by brokers, who have low infrastructure costs.

Says Mali: "We have to incur infrastructure costs which small brokers don't have to. But remember we provide an assurance and a warranty which the broker cannot give." Avers a Honda executive: "It is true that old cars are sold at a premium as we have to pay a higher price for the car from the buyer and this has to be made up. But we assure a guarantee that the customer is not taken for a ride."

One thing is for sure, with car companies increasingly getting into the business, the second-hand car market is bound to go in for a fundamental transformation.

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