Indian Automotive Industry in the e-commerce era

by Ketan Salhotra

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The “Great Indian e-Commerce story” is unravelling at a breath-taking pace. The e-Commerce industry in India is expected to reach USD 38 billion by 2016, a jump of 67% from 2015 revenues of USD 23 billion, as per the industry lobby ASSOCHAM . Gross merchandize value of the top three e-commerce companies (Flipkart, Snapdeal and Amazon) has already exceeded that of the top 10 offline retailers in the country.

Besides consumer retail, online business models have also touched and penetrated into other sectors like financial services, healthcare, real estate, automotives etc.

India is the fourth largest market and the seventh largest producer of automobiles in the world. In the financial year 2014-15, 2.6 million new passenger cars and 3.0 million used cars were estimated sold in India.

This translates into new car sales to used car sales ratio of 1:1.2 compared to 1:3 in the developed markets. Used car market (Size of USD 15 bn in GMV terms) in India is highly unstructured, with 70% of used car sales being done by local dealers or personal contacts. These dealerships are not regulated, making the process of purchase of used cars difficult and non-standardised for the customers.

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Sales of automobiles in India is now undergoing digital transformation. Consumers are increasingly tapping into technology and accessing real-time information available on the internet to research and purchase new or used vehicles. Online car reviews on websites is becoming the most important source that influences car purchases. Disruptive online business models have now started pushing the envelope of the Indian automotive industry.

A slew of interesting online start-ups have come up over the last few years in auto segments like online auto classifieds, used car marketplaces, CRM for car dealers, car insurance, roadside assistance and car rental services. In particular, online auto classifieds and used car marketplaces have attracted PE/VC investments over USD 250 mn in the last 2 years.

“The online strategy will also allow dealerships to move premises into less costly areas, while the flagship digital store can be situated in the expensive city centre where footfall is higher.”

Indian online auto classifieds segment is still very small compared to the developed countries. In 2014, there were five players (Cartrade, Carwale, Cardekho, Gaadi, and Zigwheels) in the online automobile classifieds segment. However, with consolidation in 2015, only two major players- Cartrade and Cardekho are left. Both these players are looking to consolidate their position as the preferred automotive destination for all the stakeholders – consumers, dealers and OEMs.

Growth of used car marketplaces like Droom, Gozoomo, CredR etc and increased focus of Cartrade and Cardekho in this segment are driving the culture of pre-owned cars in India in a big way. Reason behind greater traction on online portals is more and better availability of information. Horizontal classified players like Quikr and Olx have also increased their focus on the used car vertical. For example, Quikr launched Quikr Cars in 2015. These online marketplaces are giving used car dealerships (even by leading auto brands like Mahindra First Choice and Maruti Suzuki’s True Value) a tough fight.

Traditional new car dealerships will have to review their business models in the future. Savvy dealerships will have a successful Internet sales department and trained staff to effectively handle online car sales. They will understand that an aggressive online quote will usually result in a quick sale and a happy customer.

The online strategy will also allow dealerships to move premises into less costly areas, while the flagship digital store can be situated in the expensive city centre where footfall is higher. Traditional dealership premises will play a smaller role, typically as a place to bring cars for repairs and regular services –higher margin business than new sales.

Going forward, it will also become vital for OEMs to have a strong digital presence of their own to generate profits beyond their traditional business of manufacturing and selling cars. A global precedent in this regard is of General Motors (GM) rolling out its online shopping tool, Shop-Click-Drive, for selling cars online in United States.

GM sold nearly 40,000 vehicles with this program through its participating dealers in 2015. GM has now entered the online used cars sales business as well. Similarly, US-based electric car manufacturer Tesla Motors has also been in the forefront of online car sales.

On a concluding note, car buyers in India increasingly want a seamless car-buying experience that includes the decision to purchase, financing, insurance and back office paperwork. Although they still may want to take a test drive, but they would also like to have an online “buy now” button at their disposal.

This shift in consumer attitude towards online buying requires dealers and OEMs to pursue an aggressive digital strategy and investment in technology to create a seamless, integrated experience that accommodates all customer needs. Moreover, engaging with customers post transaction through online customer satisfaction surveys and promoting aftersales accessories will also help generate significant customer loyalty.

 

This article first appeared in the ETAuto.com website on 26th May, 2016.

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