This business exists since generations. Here is a glimpse of some of the upcoming sectors and evolving trends
One man’s trash, another man’s treasure? Well, it definitely holds true for the second-hand goods market.
The markets in Jama Masjid, Chandni Chowk, Nai Sarak and Darya Ganj are incessantly popular for their second-hand goods, and these are just a few in one city. Be it mobile phones, books, automobiles or even clothes, the pre-owned goods industry, although unorganized to a large extent, is here to stay.
DARE explores the current scenario of some second-hand goods segments.Automobiles
Cars make up a huge chunk of the second-hand automobile business. Be it economical ones such as Maruti or Tata or luxurious ones like Mercedes or BMW, it is a second-hand car that many first-time buyers (and many who want a second car) go for. This is perhaps because of the depreciation factor attached with automobiles, coupled with newer makes being rolled out at an affordable rate.
|Want to open a second-hand store? Choose between the following models:|
|Consignment stores: Obtain used goods from clients and sell them for a percentage of the profits. This model is less risky, as you can fill your store with goods, without paying until sold. |
Resale shops: Buy used items first and then resell them. This model requires a heavy initial investment, but earns higher profits in the long run, as the profit doesn’t have to be shared.
Says Vijay Mishra, a second-hand car dealer, “It is mostly the middle class that goes for second-hand cars. But nowadays, there are a lot of formalities involved with [new] car financing, which is why a lot of consumers are choosing pre-owned cars over a fresh purchase. If you look at places like Delhi, Chandigarh, Jaipur, Punjab, Haryana and Bangalore, around 65% of the population prefers buying second-hand cars.” Vijay gets around 20 queries in a month, mostly enquiring about Hyundai Santro and Honda. Maruti WagonR, Swift and Alto are also in great demand.
When asked how much he makes per deal, Vijay replies, “If I have already made a payment for the car, I go for a minimum profit of 10%. However, if I have a car on a consignment basis, then I only ask for commission, in which case I am very flexible. There have been times when I only made Rs 500 on a deal, and then there have been other times when I have made as much as Rs. 50,000.”
Mohit Dubey, CEO of Carwale.com, a consumer portal in the automotive space, also comments on the second-hand car industry in India. “Worldwide, the ratio of new cars to old cars is one to four. In India, however, it is still at one to one; with majority of the sales coming from the small car market. The second-hand car market in India sees about 40,000 listings online every month, spanned across 15 cities, but we definitely have the potential to sell more used cars.” Even international car players are looking for potential buyers in the country’s used car market.
|65% of the people in Delhi, Chandigarh, Jaipur, Punjab, Haryana and Bangalore go for pre-owned cars. The two-wheeler market, however, is shrinking due to several old for new exchange offers combined with a number of finance options and low interest rates on new vehicles.|
Yet, despite the tremendous scope, the second-hand car dealing segment is facing a lot of hurdles. “When people set out to buy a used car, they are wary about its condition. They hardly have any details about the history of the car, and therefore lack confidence in buying it,” says Mohit, addressing one such hurdle. This information symmetry was also discussed in George Akerlof’s “The Market for Lemons: Quality Uncertainty and the Market Mechanism.” Giving the example of the used car market as a primary example, Akerlof pointed out the problem of quality uncertainty because there are good used cars and defective used cars, i.e. lemons. As buyers of the car cannot determine whether the car is of good quality or a lemon, they only quote a price of a car of an average quality. This eventually results in the owner not placing his car in the used car market, which further results in the withdrawal of good cars and the flooding of low-quality cars in the market, enabling the buyers to quote an even lower price.
It is about time that car transactions become simpler and transparent and the consumer gets the opportunity to buy a used car in a much more interactive fashion. So, how are some of the businesses dealing with this information asymmetry? Well, Carwale.com has developed a used car price guide, much along the lines of Kelley Blue Book of USA, which tells you how much you should pay if you are selling/buying a car, depending on the car’s year of make, model, version and mileage. “The used car price guide has served more than two million valuations in the past one and half years and looks at approximately 8000 valuations every day now,” says Mohit.
Carwale.com also has tie-ups with leading car manufacturers like Maruti, Hyundai, GM, Tata Motors, Mahindra, Mitsubishi, Ford, Toyota and Skoda, as well as finance companies and banks like ICICI, Tata Finance and Deutsche bank, to facilitate the process of buying and selling second-hand cars. “It is this easy accessibility that brings around 25,000 second-hand car enquirers to the portal every month, out of which 40% actually go on to buy a car,” claims Mohit.
|Possible goods forsecond-hand business|
|- Antiques and collectibles |
- Baby equipment
- CDs and DVDs
- Cellular phones
- House wares
- Garden equipment
- Musical instruments
- Sporting goods
The unorganized second-hand car market is facing yet another setback. Apart from competition from other second-hand car dealers and the two-wheeler industry, car companies themselves have started dealing in second-hand cars, which is posing quite a threat. This organized sector, which includes players such as Maruti True Value, Hyundai Advantage, Ford Assured, Mahindra Automart India and Honda Auto Terrace, now accounts for around 20% of the business.
For the second-hand car market, an interesting twist is in the making—the much awaited launch of Tata Nano. According to industry experts, the sales of old models of Hyundai Santro, Fiat, Tata Indica, and especially Maruti 800 will be the most affected ones. For instance, the price of a pre-owned Maruti 800 is expected to decline by 30 to 35%. However, Mohit disagrees, “The Nano will have an affect on the overall car market size, but I don’t think it will affect the second-hand car market directly. Apart from people with a limited budget that will go for this car, consumers would probably purchase a Nano to have an extra car apart from their primary car.” Vijay also backs him by saying, “Everyone will be able to afford a Nano, but the status symbol associated with more expensive cars will always stay, so consumers won’t stop buying them [other second-hand cars].”
Moving on to the second-hand two-wheeler market, the industry has definitely seen better days. The number of dealers of second-hand two-wheelers has been shrinking over the last decade. Just like in the case of used cars, two-wheeler companies such as Hero Honda, TVS, Bajaj and Yamaha now have their own old-for-new exchange offers, resulting in loss of business for these dealers. A number of finance options that go as high as 80%, combined with low interest rates, easily available to consumers wanting to buy a new bike, make it a good bargain. Students who cannot afford a new bike and people who want really expensive bikes (above Rs. 70, 000) are hitting the second-hand two wheeler market nowadays and constitute a major chunk of their clientele.
Perhaps a market to look out for in the coming years is that of three-wheelers. Research shows that this segment is increasing at a rate of 20% (2006-2007), and therefore generating growth not only for new sales, but also for the second-hand market. Tamil Nadu, Kerala, Andhra Pradesh, Karnataka, Gujarat, Maharashtra and Delhi, are said to constitute about 90% of the overall market for passenger three-wheelers, so they can possibly be lucrative regions to start this business.
Another industry that is flourishing, and could possibly contribute to the second-hand goods market is of auto components, spare parts and accessories. In 2006-2007, the auto components sector garnered sales worth US$ 15 billion, including exports worth US$ 2.9 billion. India’s car accessories market is worth over Rs 10 billion, growing at a rate of 20% annually and is expected to hit a whopping Rs 20 billion by 2010. A flourishing domestic auto industry, rising number of after-sales and service centers and contract manufacturing, are all factors driving this growth.
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