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Financial Volatility, Social Distancing Among Factors Pushing Used Car Sales in India During COVID-19: Interview

We got in touch with Sandeep Aggarwal, Founder & CEO, Droom to understanding the changing used vehicle landscape, impact of COVID-19 and more.  (Image source: Reuters)

We got in touch with Sandeep Aggarwal, Founder & CEO, Droom to understanding the changing used vehicle landscape, impact of COVID-19 and more. (Image source: Reuters)

Indian customers don’t have the social discomfort or stigma of buying a used automobile and understand that vehicles are depreciating assets, pushing more and more used car sales.

In the matured markets, the used car sales are 4.5 times the new car sales while in India it currently stands at 1.5 times the new car sales. While these number may seem less, Indian used car market, which is highly fragmented and unorganised has gradually find its place among the car buyers, recently overtaking new car market. It is estimated that as more and more organised players enter the space the number is set to rise to 2.1 times in next five years. One such organized used vehicle player that has somewhat changed the landscape of pre-owned vehicles in India is Droom. We got in touch with Sandeep Aggarwal, Founder & CEO, Droom to understanding the changing used vehicle landscape, impact of COVID-19 and more.

How has COVID impacted the used car business?

COVID-19 has accelerated the demand for the used vehicle, and the simple reason here is disposable incomes and rapidly changing financial dynamics. Enrolling in a renowned university, changing jobs, getting married, buying a home or a posh car, each of these aforementioned things require a good budget; otherwise, mismanaging finance can cause drastic economic setbacks. At such a juncture where the country is going through economic uncertainty, more and more people are opting for used automobiles as they are cost-effective and feasible.

On the other hand, we at Droom are primarily dependent on the used automobile industry, and from our perspective, the current circumstances have simply accelerated the demand for used vehicles. The same can be witnessed through our growth trajectory from July 2020 to April 2021.

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Used cars are getting more traction than new cars. Why?

Culturally, unlike some other countries, Indian customers don’t have the social discomfort or stigma of buying a used automobile and understand that vehicles are depreciating assets, it loses their value by 10% value as soon as the vehicle is out of the showroom and within the first two years, nearly 1/3rd of its original value is lost. There are a couple of more factors that played a vital role in changing the consumer preference towards used and online vehicle buying and selling such as financial volatility, decrease in disposable income, inconvenience with ridesharing and comfort with own vehicle only to prevent infection spread.

Your take on the recently announced vehicle scrappage policy?

With the recently announced scrappage policy, the government increased the economic life of the vehicle which has increased the cost of ownership. Earlier, if you buy a new vehicle, the RC was valid for 15 years and now it is of 20 years. Government increasing the life of the vehicle is a very noble step towards increasing the affordability of the car. The total cost of ownership has become buyer friendly. As we are aware, India is full of youth with a median age of 50, it’s very important to keep the life of the vehicle longer. So that people, just not focus on scrapping the car but can also focus on the other assets. Also, the government has started recommending the best practices for the disposal of the car which is more in line with the best practices globally.

Can buying car online overtake physical showroom visit?

Yes, certainly. The reason is the absence of large-format modern retailing. For instance, the world’s largest physical retailer is CarMax has the ability to accommodate 300+ cars in a showroom. However, this large-format retailing is available in India for only new cars not for used cars. This poses a hurdle for customers in the selection process as the cars available in the showroom may not suit their preferences. Besides this, on the supplier’s side, the real estate costs are extremely high, requiring a large capital, making a consolidated inventory in a single location immensely challenging.

Online automobile marketplaces can deliver a wide range of options for customers with home test drives and delivery facilities while cutting down on the capital required to run a physical retail showroom. With the world embracing digitization and every industry adapting to it, contactless has become the norm and car buying will indisputably witness a large-scale shift from offline to online. In fact, this transition has already begun.

Technologies adopted to attract customers post-COVID-19

During the first wave, after a consumer selected a vehicle on the Droom website, there were 7-8 more steps for them which included some human interventions like human touch or stepping out of their homes. But we automated a couple of them with the spirit of creating full contactless commerce.

At Droom, we have automated a few of them intending to create a full, end-to-end automobile e-commerce system with features such as automation of the paperwork, escrow payments, etc. We also recently created AI-based matching algorithms and the idea behind it is very harmonious of how a buyer goes for buying a car until they end up finding a dream car. We seamlessly integrate lender & insurance providers so that when you find your dream car, you are preapproved for the loan and you have a very effective loan and insurance policies.

Furthermore, we recently acquired Visiolab Ideas, an AR startup. Our idea behind this acquisition was to introduce an AR-VR lab to improve the customer experience while buying vehicles. The new feature will extend live virtual tours in 3D. As a result, customers will be able to make informed decisions after properly going through lifelike automobile designs. We plan to continue leveraging technological innovations and bringing forth innovative solutions or products for automobile e-commerce, thereby facilitating a seamless and impeccable customer experience.

What are your expansion plans?

Droom aims to be listed in Nasdaq in 2021 and achieve its GMV target of USD 3 billion. We are also looking at a possible Hong Kong Stock Exchange listing post the Nasdaq IPO through our Singapore-based holding entity. Moreover, we will also be continuing our geographical expansion. Before COVID, we had already expanded in Singapore, Thailand, and Malaysia, and have an up-and-running subsidiary there. We halted investments due to lack of travel and economic uncertainty induced by the pandemic.

Additionally, Droom occupies around 80% of the 0.7% of the online automobile marketplace. Over the next 2 years, our expansion strategy would involve deepening our presence in the first 100 cities of India. Will continue to expand in the Middle East. Droom is also creating a platform that will enable new vehicle OEMs and Electric Vehicles can utilize it to distribute new vehicles to consumers.

Tell us some interesting data citing the vehicle sales trend

At the outset of the pandemic last year, we took a significant hit just like every other business, with over 90% of sales dropping. However, we gained immense traction after July 2020. In fact, as the need for private vehicles became more acute as people steered clear of public transportation, there was hardly a 10-12% dip in our business even when the second wave of the pandemic was at its peak.

Overall the need for vehicle ownership saw a visible increase along with the apprehension towards public transport. Moreover, the online mode adopted by the automobile industry accelerated the growth. And this time around, individuals and companies like Droom were better prepared to deal with adverse situations.

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first published:July 17, 2021, 12:00 IST