The used car market in India is growly very rapidly. That much was obvious when Mr. Rajeev Dubey, President, After-Market & Member of the Group Executive Board, Mahindra & Mahindra Ltd. & Mr. Yatendra Chadha, VP – Operations & Network, Mahindra First Choice Wheels Ltd. (MFCWL) shared their aggressive growth plans with us at the launch of a new Mahindra First Choice Wheels franchise today (27th June 2012). The new store would be the largest in Delhi (spread across 15,000 square feet) and is run by M/s Garg Automotives LLP in Dwarka. They hope to initially sell 35 – 40 cars per month with volumes going up to 75 cars per month by March 2013.
MFCWL currently has 25+ dealers in Delhi. In total, they have 161 used car stores across 100 towns in India. Out of these, 5 would be company owned and the rest would be franchise operations. Plans are to go up to 260 stores by the end of FY 2013 and 500 stores by end of FY 2015. MFCWL sold approximately 24,000 used cars in 2010-11, 34,000 in 2011-12 and expects to sell 45,000 in 2012-13 going up to 100,000 in 2014-15. Mahindra also has 10 fully company owned service centres in India.
Mahindra First Choice offers 24×7 Road Side Assistance and warranty on certified pre-owned cars. The warranty, subject to specific terms and conditions, covers important parts of the car. The 24×7 Road Side Assistance, subject to specific terms and conditions, assures the certified pre-owned car buyer that should the car break-down, she will be provided assistance. Amongst the other value adds on offer are a trained engineer inspecting the vehicle and also ensuring that all papers are in order. After purchase by the MFCWL store, every car is refurbished and undergoes an extensive 118 point quality check as part of the certification process. In our view, this represents a welcome maturing of the used car segment and gives much needed peace of mind to a used car buyer.
For those of you interested in dealerships, you need approximately Rs 1 crore in working capital , around Rs 25 lakhs in setup costs plus monthly establishments costs to run a store. Expected returns for a franchisee can be up to 30-40% per year. We guesstimate there are more than 10,000 used car dealers spread across India. There is a significant opportunity to consolidate this space and Mahindra seems to be taking a lead in this area. As always, growing competition amongst used car dealers is always welcome news for us car shoppers!
Mahindra estimates that the used car market is roughly the same size of the new car market today i.e., roughly 2 million cars but growing much faster. The market share of each car brand in the used car segment is roughly similar to market shares in the new car segment.
Lastly, for those who of us who are finance buffs, a Private Equity investor namely Phi Advisors had invested in MFCWL in 2008. Earlier media reports had hinted that Phi Advisors had invested Rs. 80 crores for a 10% stake. Given that Phi has a holding period target of 18 – 60 months, we would not be surprised to see a public listing for MFCWL within the next two to three years if market conditions are suitable.
Definitly used market is very big in future.
As now the middle level is llikng for this market but soon higher segment as well as rural will also play major role.