Start a Used Car Business in India: A Step-by-Step Guide

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The used car market is larger than ever before. People buy second-hand or used cars if they cannot afford the ex-showroom versions. Despite new car sales slowing down, the opposite has happened for used cars. Therefore, starting a used car business in India can prove to be extremely profitable. Learn all about starting a second-hand car business in this guide.

A Big and Stable Market

The used car market in India has remained largely successful throughout the decades. A report by IndianBlueBook suggests that Indians are more inclined towards buying a used car than a new one. The report stated that customers find used cars provide more value for money than new ones. This market is fuelled by the gigantic depreciation new cars see within the first year alone. Within a year, a new car’s value can depreciate by as much as 50%. That is the primary reason used car businesses can fulfil the need of their customers at such a low price.

Used Car Sales Will Grow at a Faster Pace

Used car businesses have cashed in high profits in recent years. According to a report by Mordor Intelligence, the used car market in India was valued at USD 27 billion in 2020. The market share of this industry is expected to more than double by 2026. This is thanks to the CAGR of 15% for the next five years.

In 2019 alone, the number of used cars sold surpassed new cars sold by 4 lakhs. The growth rate for the organized used cars segment is even higher at 22.79%.

The organized sector is largely dominated by large players like Cars24, CarDekho, Mahindra First Choice Wheels, etc. As the demand for used cars surges, the need for new businesses has also increased.

How to Create a Business Plan for Used Cars

Like every other business, you need to create a business plan before you start. If you intend to tap into the rapidly growing unorganized and organized sector, you will need to stand out from the rest. Therefore, a business plan will allow you to create a clear blueprint of what you need to do to achieve that goal. You can use this standard business plan template for reference. However, below are some sections that need to be emphasized.

Executive summary

The executive summary will draw the attention of the reader at once and compel him/her to consider your business plan. Therefore, it should be planned and written with purpose. An executive summary is the summary of your business plan in two pages. In these two pages you need to communicate the mission of your business, about the business, people involved, your product, how you intend to grow it, goals, and other attractive statistics. If you’re writing an executive summary that will be read by banks and investors, you need to convey why and how this business will be successful.

Think of an executive summary like a marketing pitch. You are selling your business proposal to investors; therefore, this is a formal version of a marketing pitch. However, do not make it too obvious by using sales terminology. You’re pitching your business plan through facts and figures and not actual marketing.

Decide on Products and Prices

The used car business is segmented by the vehicle types it offers. There are exclusive luxury car businesses in this segment or vintage cars. Therefore, deciding on what you want to offer, can make laser focussed marketing campaigns and attract the right crowd. The categorization of products is done in two ways – vehicle type and fuel type.

What vehicles do you want to include? – hatchbacks, sedans, sports cars, jeeps, etc. Are the vehicles in your garage petrol, diesel, or electric powered? When you bottle down the product range you want to sell, deciding the pricing becomes easier. Working with a reliable dealer, you can calculate the depreciation, repair cost, and acquisition costs to fix the perfect pricing.

Conduct a Market Analysis

Conducting a thorough market analysis will put you way ahead of the unorganized competition. Market research or analysis refers to mapping the trends and going behind the scenes of the industry. While conducting a market analysis you figure out who your potential customers are, and what influences their choices. There are quite a few direct benefits of a market analysis such as risk reduction, studying emerging trends, and an in-depth understanding of target customers.

Study Your Competitors

The next step of your market research is tracking your competitors. Some of your competitors have been in the industry for a long time. Therefore, by studying their strengths and weaknesses, you can implement smart business strategies. A SWOT analysis is one of the best ways to do that. Begin by identifying your competitors. Use an excel sheet and create a detailed profile for each competitor. What are their products? Who is their target market? Where are they located? What is their estimated revenue? By visiting their social media handles, you can even figure out the social media marketing strategies used.

CRM (Customer Relationship Management)

Customer Relationship Management (CRM) is important for every business. More so, in the used car industry. When a customer buys a new car, showrooms ensure the buying and maintenance experience is as smooth as possible. That creates long-term customers. As a used car business, your goal is to compete with the CRM provided by showrooms. CRM can help retain your customers and even attract more customers. Extended warranties, 24/7 customer support, and big discounts create a feeling of trust and satisfaction in the mind of the customer.

Apart from customer retention, CRM will also help you understand the needs of the customer. You can use such analytics to streamline your business and optimize it. Additionally, when a customer gets the same or better CRM compared to a showroom, they will automatically partake in word-of-mouth marketing.

Finding the Right Distributor

Dealers or distributors are the building blocks of your business. Having a long inventory of cars can help your business shine through. Therefore, finding reliable car dealers is extremely crucial. You can do that through surveys, events, and networking. If you want to keep the costs low auctions are another great place to start. At auctions, you can handpick the cars you want and maintain steady pricing. You can even meet with other car dealers here which will further help build a strong network.

Another important part of building connections is having a good rapport with reliable mechanics. You will need skilled staff that can keep your customers happy and their cars in top condition. Apart from in-house mechanics, a third-party service can help you smoothen this process.

Select an Ideal Location

Picking the right location requires strategic thinking. You must not pick a location based on your convenience. Get into the shoes of your target market. For example, the famous bike brand Royal Enfield has positioned several of its showrooms near colleges and offices since youngsters comprise the majority of its customer base. Similarly, if you are selling used hatchback cars, you are likely targeting families. Positioning your store near large residential complexes will significantly improve the chances of drawing in your target customers.

Legal requirements

There are primarily two license requirements when starting a used car business:

  • Car dealer’s license under the Shops & Enlistment license – You need to describe the nature of your business and get certain registrations done with the municipal corporation for this license.
  • GST Registration – mandatory for all businesses in India. Can be obtained through a chartered accountant.

Business & Liability Insurance and Fire Certificate are two additional documents you will need to run a used car business.

Financial Plan

There is no fixed cost while starting a used car dealership in India. It depends on a lot of factors. The number of employees, inventory list, type of dealership (luxury, sedan, sports, etc.), price of crude oil, legal fees, marketing budget, rent, and much more. Setting up the business might be expensive. However, a business plan can help in this regard. By applying for a business loan, you can finance over 70% of the setup cost.

If you already have large capital at your disposal, you can even consider buying a used car franchise. Franchises have several advantages such as a loyal customer base, ease of marketing, and dealer support. Therefore, create a financial plan including every meticulous detail for the best results.

How has COVID-19 Affected the Used Car Industry?

Unlike other industries in India, the COVID-19 pandemic has had little to no effect on used car sales in the country. The used car business has significantly grown during this period. The pandemic chocked the cash flow and halted supply chains. This forced buyers to look for cheaper alternatives. That’s why new car sales plummeted after 2020 while used car sales were steadily growing.

In the fiscal year 2020, the used car market recorded sales of 4.4 million units. However, only 2.8 million new cars were sold the same year. High-quality CRM has also prompted buyers to opt for used cars. As mentioned above, by 2026, the used car market is expected to reach a valuation of $50 billion.

Conclusion

Used car sales are not only increasing in offline stores but also online. Thus, having a robust website and online store is just as important as a physical store. Through innovative marketing, ads, and customer-driven products, you can fulfil the diverse requirements of the growing market. If you harbour a passion for cars and want to turn it into a profitable business, start planning your used car dealership today.

This post is also available in: English Hindi

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