India’s economy is undeniably headed towards a progressive path. However, it is yet to catch up with the pace at which the cost of capital is rising. Given this situation, in consumer goods segment, the options of retrofitting and re-usage are being considered more actively than ever before, especially in case of automobiles. The rationale behind this condition could be attributed to high interest rates, risk aversion and subdued investment appetite.
In this scenario the rise in income may not necessarily be commensurate to the growing aspirations of the middle class- to lead a sophisticated life. These insatiable aspirations fuel the growth of the second-hand market which acts as the repository of cheaper alternatives. Also, needless to mention, the consumer mindset in India is taking a shift from being rigidly skeptical about used items to becoming more rational, economic and open.
Co-founded by Niraj Singh, Ramanshu Mauhar, Ganesh Pawar and Mohit Gupta in April 2015, Gurgaon-based Spinny is an online marketplace for buying and selling used cars. The motive of the company lies in bringing transparency and convenience to the experience of buying and selling pre-owned cars. To ensure the same, it takes on itself the responsibility of the entire procedure that includes legal paper works, car inspection, test drives, warranty etc., thereby relieving the users of the unwanted hassle.
A Succinct Overview of this Sector
As stated by Niraj, consumers in India generally have an inhibition against buying used cars. On the contrary, in the west, for every new car sale, 3 used cars are being sold. The factor he holds accountable for such a scenario is the loophole in the information flow.
“The major roadblock has been the asymmetry of information present in the process of used car transactions.”
The used car market is highly unstructured with Independent Dealers and Curbsiders comprising a large chunk of the market. The Information asymmetry involved in the process leads to the problem of Moral Hazard. Independents charge anywhere between 10-30% margins on cars. For a layman, choosing from a pool of mint and lemon cars entails a good probability of Adverse Selection.
Buyers are now moving online for all their needs. This is evident from a recent survey done by Accenture. On being asked whether they would go through the entire process of purchasing a car directly online (including financing, price negotiation, the back office paperwork and delivery to their house), a whopping 84% of the respondents replied positively.
How Does it Work?
First of, the interested seller has to send a request to the company for listing his/her car on Spinny’s platform. Upon receiving their request, the company would send a qualified expert to inspect the car thoroughly as well as to set the selling price, based on a mutual understanding between the company and the seller. (All the cars are assessed on a detailed 200-point inspection checklist). Once the car inspection is complete, it would be awarded with the Spinny certificate. Thereafter, it is entirely the company’s responsibility to sell the car at the mutually decided price which is phrased as the ‘Star Price’.
For buyers, the website provides a structured interface for searching cars. The company also renders a provision to test drive the vehicle prior to purchasing it. Each car comes with a one year warranty with all paperwork handled by the company.
Spinny also undertakes the responsibility of delivering the purchased car to the customer’s door-step.
Further, it has tied up with 3 leading banks to ease the loan and insurance process.
Listing+Inspection is absolutely free for sellers. However, the company charges a seller’s commission on every successful sale.
Trends- Maruti Suzuki and Hyundai are the preferred brands among people looking to buy used cars. “Most of the buyers are able to make a decision on 1st test drive itself. We believe our quality of curation is the main driving force behind such quick decisions being made by consumers. On average we inspect four cars against every one that we list, so the pool of cars on our platform is definitely high quality”, stated Niraj.
Funding Status and Future Plans
The company is currently bootstrapped.
It has plans of expanding to all the tier-I cities within the next 3 months. It also wants to spread its footprints across the top 20 cities of the country by mid 2016.
Competition and Market Opportunity
The company is competing against Vertical Classifieds platforms like Carwale, Cartrade and Cardekho as well as the Horizontal Classifieds platforms like Olx and Quikr. Other players in the competition are Droom, Zoomo, 19miles, Truebil and CredR.
With 3.5 million used cars sold in the last financial year, the Used Car market is valued at about $15 billion. The market is growing at 20-22% CAGR. A recent Crisil study has forecasted the sales of used cars to reach around 8mn units by 2020. This will value the market size at around $ 45 by 2020. That’s a healthy threefold increase in the market size, states Niraj.