Mahindra FirstChoice Wheels Ltd, the used car arm of the Mahindra group, plans to expand its sales network and double sales in fiscal 2018 as it expects robust demand for pre-owned vehicles on the back of strong new car sales, chief executive Nagendra Palle said.
The company, which sold 225,000 used cars in the year ended 31 March, expects to double the volume to 550,000 by the end of the current fiscal year, Palle said in an interview on Wednesday.
“Last year, we had around 80% growth and this year we are on track to almost double our volumes,” Palle said, adding that the multi-brand used car business would raise another round of funding in the next 12 to 18 months, which would primarily be deployed in building the brand and in digital technology.
Mahindra FirstChoice Wheels posted a profit after tax in the three months to March after a gap of three years, helped by strong volume growth, Palle said, declining to provide specifics.
Mahindra, which entered the used car business in 2008, began with outlets that were owned and operated by the firm and started converting them into franchises in 2014.
Seven years after Mahindra entered the space, the used market has surged. The pre-owned car market in India, which is estimated to have sold 3.3 million units at the end of calendar year 2016, is growing at over 15% a year. The organized segment is advancing at over 25% every year, according to a study by Indian Blue Book, a vehicle pricing guide. The study, released in August 2016, said the market for second-hand vehicles in India is 1.2 times the size of the market for new ones.
Abdul Majeed, auto practice leader at PwC India, expects used car sales to continue outpacing sales of new ones due to India’s low car penetration of 21 per 1,000 people, the shrinking life cycle of a car and low per capita income in the country.
“Even by 2020, I don’t expect the per capita income in India to grow substantially from the current levels. Therefore, there will be enough at the bottom of the pyramid, who will want to buy a used car,” Majeed said. Assurance of better quality and service as the market gets organized has also been fuelling growth, he added.
The e-commerce boom that has spawned a raft of technology-based firms in the used car space has added heft to the market. But Palle doesn’t see e-commerce sites as competition. “Most of these companies are classifieds which are only used for search and research. Nowhere in the world are cars bought online,” he said.
These portals, will generate leads at best, while actual transactions will continue to be in showrooms. Buyers of used cars will not conclude a deal without kicking the tyre and seeing the car, he said.
Mahindra FirstChoice, which has a business model comprising both the digital and physical space, is uniquely positioned in the market, Palle said.
The firm also earns revenue from adjacent businesses such as auctions and inspection of used cars and also offers technology-enabled supply chain solutions for institutions.
“We are trying to build an ecosystem where we have wholesale, retail vehicle transactions coupled with technology,” he said.
On Friday, Mahindra FirstChoice entered the used high-end two-wheeler segment and opened its first outlet for used premium motorcycles of 250cc and above in New Delhi, news agency PTI reported. It currently has 1,290 outlets for used cars and plans to take expand the number to 2,000 by the end of this year.