Indian Used Car Dealers An Inside Story

Foreword 

All the contents mentioned are purely an interpretation of the experiences gathered over years of experience in interacting with over 5000 Used Car Dealers across the country.

Types of Used Car Dealers 

Retailer  

These are the dealers that are the most popular to the general public. They are the ones who have their Used Car Showroom and they sell the Cars.  

Investor 

An Investor in the Used Car Dealer Community is of 3 types 

1. Pure Financier 
2. Joint Buyer of the Car
3. Investor who Parks his Cars at different dealerships

Pure Financier - This Investor provides financial support to the dealers to purchase their cars in return for a fixed returns per month say 1 to 2%. He does not have any say in the purchase / sales decision of the dealer 

Joint Buyer of the Car - This category of investors is a co investor in buying the specific car say 50% and his return is dependent on the returns earned from the sale of that specific car and the net margin earned on the sale of that specific car.  

Investor who Parks his Cars at different dealerships - This category of investor buys the Cars himself and is aware of the dealers in the vicinity and their skills in selling the specific category of cars. He parks his cars selectively at those dealership and negotiates a price with the dealer and time frame by which time the car will be parked in that dealership. If the dealership is able to sell the car above the negotiated price the difference is the dealership margin.  

Off Loader 

Off Loader is a type of used car dealer who buys cars in bulk from OEM Dealers and distributes those cars across the city to different dealerships based on the Retailers taste and preference parameters such as Ownership, Kms done, Service Records , Meter Tampering Status, Accident Status and Document Status.

Documentation Expert 

This is a special category of dealers whose core competence is they are experts in documentation by virtue of their engagement with the Regional Transport Offices. This Category of dealers usually buy cars from repossessed car Bank Auctions and get the paper work done and once the paper work is in order sell the cars to the Retailer. Ofcourse for a good margin. Buy Cheap – Get the documentation Done – Sell to the dealers. 

Accident Car Dealer 

 This is a special category of dealers whose core competence is they are experts in car repairing, denting painting and mechanical works. They buy accident damage cars from insurance companies and then refurbish the car completely in their garage and make it immaculate and sell it to the end consumer or a dealer.  

Spare Parts Off Loader 

• This is a special category of dealer whose core competence is their network of spare parts and accessory shops. They buy total loss cars from insurance auctions , total loss cars. Post buying the entire car is dismantled part by part and the accessory specialist buys the accessory that they are dealing with viz Steering Wheels, Tyres, Seats, Mirrors, Engine, Radiator, Horn etc 

OEM Used Car Dealer - Offloader 

The New Car Dealers buys Cars in exchange from the New Car Buyer. This makes them the biggest supplier of Inventory to the Used Car Market. The cars that they buy back fall in to all category of cars that we have defined above . As per the OEM Norm they need to Retail some percentage of the Cars under the OEM Scheme which they retail. Other Cars are picked up by the Off Loaders / Retailers etc.  

Methods of Selling a Car  

Purchase & Sell  

As the name signifies they Purchase the Cars from the Sellers , refurbish the cars and display the cars in the showroom and sell them to the buyer who wants to buy the car. The Purchase Price + Refurbishment Cost + Holding Cost is the Cost of Purchase. Difference between the Sales Price and Cost of Purchase is the Gross Profit. 

Park & Sell  

 As the name signifies these dealers do not purchase the car. They ask the seller to park their car in their showroom and ask them to quote a price. When the buyer likes the car and makes an offer to buy the car the transaction happens in one of the three ways mentioned below.

Charge Commission from both the buyer and seller on the transaction , Charge Commission from one side , Sell the Car at a higher rate than which they have agreed with the seller of the car and keep the difference as their margin  

Types of Retailers 

Buyer & Seller  

These dealers are usually Partners where in one partner is completely focused on Procuring the Car and the other partner is completely focused on selling the cars.  

The partner who is focused on procuring has a great network in the used car community, with the OEM dealers, free lancers and with other dealers in the market. Buying right is the key to success in the used car business. 

The partner who is focused on selling the car is the face of the used car dealership and is engaged in customer relations , facing the customers, interacting with the banks for financing and insurance companies, managing the accounts, managing the sales team, managing the refurbishment etc 

Only Sellers 

These dealers are pure retailers and only focus on selling the cars. They are offered cars from the network of free lancers and Off loaders available in the market who are aware of the buying habits of the dealer and the type of cars he purchases.  

Evolution of a Retailer 

Stage 1 – Employee at a dealership or Free Lancer 

Most of the first generation dealers start their career as an employee in a used car dealership or as a free lancer and over a period of time they learn the trade and then evolve to become an independent used car dealer 

Stage 2 – Tryst with Destiny – Used Car Dealership 

The first time a used car dealership is started that is the time when the dealer is ready to buy any type of car Single Owner Multiple Owner, Any Make , Model that fits his budget, Any amount of Kms done.  

The Sole objective is that he should be able to make a margin of 5% or above on the car that he purchases and sells and should be able to roll over the inventory within 30 days. 

They get the financing / insurance etc done from the bank branch employees with whom they forge an alliance or through a big DSA available in the market 

Stage 3 – Develop Taste – Used Car Dealership 

If the dealer is able to survive Stage 2 which 80% of them are not able to pass through then that dealer enters Stage 3 wherein he has strict norms for selecting a car such as 

1. Only First owner Car 
2. Car less than 3 years old 
3. Car which has done less than 25,000 Kms 
4. Only Specific Make and Model which he know are fast moving cars in his area of operation 

This is the stage when the dealer aspires to become  

• Direct Selling Agent (DSA) of the Bank or Financial institution to earn revenue by financing loan for car purchase 
• An insurance agent wherein he can earn additional revenue by sale of insurance 
• Cross Sell of other products such as Service, Road Side Assistance etc 

and to achieve all the above they set up a mini tele calling set up to work on the leads provided by the car portals that they have signed up with and to follow up with the customers for the above mentioned activities. 

Stage 4 – Premium Used Car Dealers  

Maximum 1% of the dealers from Stage 3 make to this category of Premium Used Car Dealers. These dealers deal only in Segment D and above Cars. They are focused on quality and not interested in quantity and turnover. The margins for these dealers vary from 10% and above as the Premium Car Seller is aware that the depreciation on the Premium Car is high and the Premium Car buyer is not too bothered by shelling a lac or 2 extra. 

Why a Retailer in India does not Cross a Specific Size 

Most interesting area to introspect as to why a Used Car Dealer – Retailer does not grow big beyond a specific size.  

• The key reason for this is the aspiration of the Top employees working in the dealership. 
• Used Car dealership is a high margin business and to grow the business the dealership has to hire services of sales managers.  
• Over a period of time as the business grows the sales managers increases  
• The dealer owner cannot focus his time and energy on the day to day transactions as they are expanding in other areas such as focussing on back office , audit, taxation, RC management , Finance, Insurance, Cross Sell etc.  
• The Sales Managers engage with the Customers negotiates and closes the deal as over a period of time they have earned the trust of the owner and have authority to take business calls 
• He eventually becomes the one point contact for the customer queries and the repeat customers start visiting the dealership because of his reference and the efficient service that the sales manager has provided 
• Whatever margins the Dealership Principal earns on the Car he can pass maximum 10-15% as incentives to the Sales managers apart from the Salary that he is being paid. 
• The Sales Manager as this point in time becomes aspirational as he has now a complete understanding of the business and network of customer base and he decides to split and start his own dealership 
• He starts his own dealership in a nearby vicinity and in the processes gets one or two other employees and the customer base of the dealership and this gives a jolt to the dealership 
• The above process happens invariably in India with almost 99% of the dealerships  
• How many of these break outs become successful is a separate discussion but the harm has already been inflicted to the main dealership. 

The Used Car Industry and the eco system is much more complex that it seems to an ordinary person. It is one of the most complex eco system as it is fraught with so many risks to both the buyer and the seller in terms of knowing the identity of the buyer or seller ; knowing the history of the Car Accidental Car / Car Used in some Anti Social Activity or will be used for Anti Social Activity by the buyer after purchasing and before getting the RC transferred. 

Kindly Check the Credentials of the Dealer Properly before Buying a Used Car or Selling a Used Car. 

PRICE OF THE CAR

IS NOT THE ONLY CRITERIA

FOR BUYING A USED CAR