Decode - CARS24 research on change in car purchasing behavior due to Covid-19
These are unprecedented times and none can be sure of how things will really unfold over the coming months. This blog captures findings from a recent market survey run by CARS24 and clubs it with what we already know to paint a picture of what to expect in future.
Quick recap of how the industry was shaping up till 2019
We all know year 2019 wasn’t the greatest for automotive industry in India — let’s try to forget 2020 for a while.
New car sales had been growing at ~8% every year since 2014 before hitting the rough patch in 2019; attributed to multiple factors from overall weakening of economy, lower liquidity post GST introduction, delayed impact of demonetization, shifting policies for EVs & fuel emissions, and even changing commute preferences of young generation.
Pre-owned car transactions, which had been growing at a faster rate than new cars fared relatively better growing at 5% vs 2018.
However, by the end of 2019, things were looking up again driven by heavy discounts on BS IV vehicles and more encouragingly successful launch of few new SUVs (Kia Seltos, Hyundai Venue, MG Hector, Maruti XL6).
COVID lock-down halts the reviving auto industry
Indian automotive industry had barely made the recovery before the distant sounding corona-virus fear got real & way closer home by mid March.
It was all over the news (and in the air!) and obviously started impacting our footfall too, first a gradual decline over a week and then the sudden drop to zero after the formal lock-down was introduced.
The web traffic too thinned out since lock-down with a sharp drop seen in leads (customers leaving phone number on the site with strong intent to buy / sell car). Worth noting that buyer leads dropped less and are already showing signs of revival.
Like a true mission driven firm with character, we at CARS24 have taken this challenge head-on.
We moved fast to optimize all our fixed costs across business (rentals), tech (infra, data warehouses, query engines) & marketing to ensure our burn figures stay stable (despite zero revenue since lock-down),and more importantly we started using this downtime to become stronger & faster versions of ourselves — doubling down on pending high priority initiatives from tech back-end upgrade, to product enhancements (including features to address the likely shift in consumer behavior e.g. Home Inspections, Classified listings etc), to higher focus on integrating ML & deep learning modules in our various systems, enhancing our SEO capabilities, to strengthening our relations with channel partners & customers, and deploying exhaustive online training modules for our business & operations teams.
These are uncharted territories for all of us, and our HR team along with all the leaders is doing a fantastic job to drive engagement & productivity across all functions, while ensuring that we also get to contribute time & mental bandwidth to our families who are all coping with the lock-down.
What happens once lock-down is over ?
Almost every single expert out there has agreed on one thing that it’s going to be a very long road back to normalcy. Lock-down in India has already gotten extended from 21 days to 40 days, and very high likelihood that even after the lock-down is lifted, there will be huge restrictions on many activities that could compromise social distancing.
And long after these restrictions are lifted, people would still continue to follow ‘better safe than sorry’ mantra. So safe to assume fairly long term impact on travel & tourism, entertainment and food & beverage industries. The lock-down triggered slowdown will also impact spending power of consumers which could have cascading impact across all the industries including real estate & automotive industries. Last but not the least, the shift in demand from brick & mortar retail to eCommerce will only get accelerated.
A recent survey from CARS24 on ~3,600 respondents reveals some interesting insights (refer this survey report for more details)
- Almost ~40% of respondents are planning to buy a car in next 6 months with reasonable likelihood (biased sample since we reached out to recent buyer & seller prospects who visited our website and are yet to transact)
- Among these respondents ~25% primarily used public transport and cabs/taxis for commute, ~50% of them plan to switch to own cars and another ~15% expect to switch to own two-wheeler as preferred mode of transport immediately post lock-down!
- Almost ~45% of respondents with purchase intent expressed they are likely to reduce their budget for the car purchase attributable to the pandemic induced financial constraints. This aligns with the fact that share of those looking for pre-owned car increased from ~60% to ~70%.
- Also, 10% of respondents are willing to increase budget for the sake of a safer car, along with features like air purification & self sanitization.
- Almost 40% of the likely purchasers are opting for relatively contact less purchase cycle
The survey suggests that there will be massive change in commute preference from public/shared transport to own vehicles, also consumers will be facing financial crunch, and are expected to leverage online channel significantly more than in past.
These insights are aligned with similar studies conducted in other parts of the globe to assess post lock-down shift in behavior of consumers. Please refer the CARS24 survey report for more details.
Pre-Owned Cars to see surge in demand
We already know that increasingly higher number of people have been opting for pre-owned cars since last few years, the ratio of pre-owned car to new car transactions has increased from 1.25 to 1.5 in last 5 years and annual pre-owned car transactions now stand at ~4.8m as compared to ~3.3m for new car transactions in FY 2019–20.
This gradual increase in pre-owned cars is driven by burgeoning middle class with ever increasing disposable income & higher mobility, and further facilitated by increased transparency in the pricing, quality and availability of supply led by CARS24 and other players (refer this blog capturing inefficiencies of pre-owned car ecosystem and the role being played by CARS24 in addressing them).
The shift towards pre-owned cars is now expected to get accelerated because of the changing preference of commuters and expected financial constraints in near future.
If the fundamental issues around transparent pricing & assured quality are taken care of, buying a pre-owned car is generally an economically more sound decision.
The depreciation curves of almost all kinds of cars suggest significantly faster depreciation in first few years and then a drop in rate of depreciation, in simpler words an average car depreciates ~40% of on road price in first 3 years and only ~25% of on road price in subsequent 3 years.
Let’s do some basic back of the envelope math to compare economics of using cabs vs purchasing a new car vs purchasing a 3 yr old car, all of this for a period of 5 years when the car is assumed to be resold.
The cost / km for cab in Gurgaon is INR 20/- (non peak hours). Since we are not doing any NPV & inflation adjustments, so I am assuming it to stay same over the next 5 years.
After accounting for loan interest, resale value, cost of insurance, maintenance, mileage, other miscellaneous expenses like parking/cleaning etc the Cost / km of owning a new car for 5 years is INR 21/- vs INR 15.5/- for a 3 year old pre-owner car, vs INR 20/- for a cab.
Note: I have assumed lower mileage, higher maintenance cost and higher interest rate for pre-owned car. Also, haven’t accounted for peak surge in cab pricing.
Of course, there are always other personal factors (than just the basic economics) which come into play when making this decision — love or hate for driving, tolerance for cab hygiene & wait time, public transport infra in the neighborhood, and more recently fear of infection in shared transport.
Conclusion
So to sum it up, while there is a sharp drop in immediate seller & buyer intent for pre-owned cars, very strong likelihood of swift recovery of the used car industry as consumers will be altering preferred mode of commute from public & shared transport to own vehicles coupled with the fact that expected economic downturn is making most of the consumers choose pre-owned car over a new car given better economics of former.
Also, consumers will be exploring increasingly more digital, ‘at home’ & contact-less options for the purchase.
These are tough times and the world around us will be changing remarkably fast in coming months. Organizations that can unlearn & relearn fast and execute well will not just survive but thrive.
“Bad companies are destroyed by crisis, Good companies survive them, Great companies are improved by them”, Andy Grove the legendary former Chairman & CEO of Intel
This blog is based on the findings from the survey run by CARS24 marketing team — special thanks to Gajendra Jangid (Co-founder & CMO), Nida Naushad (Head, Brand), Priyadarshan (Director, BI & Strategy) and Tanay Dindor (Senior PM, Consumer Products) for designing and running the survey, extracting key insights and pulling together this powerful report.
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