A few weeks ago, in December 2021, an Indian used car startup called Spinny joined the unicorn club after raising $285 million from investors at a valuation of $1.75 billion. They are the fourth unicorn in Indian used cars in 2021, following Cars24, CarDekho, and Droom. But why is that? Why are so many Indian used car startups turning into unicorns? Please continue reading the post to learn about these startups’ journey to becoming unicorns in the Indian startup ecosystem.
Let’s take a look at how each of these startups is doing and learn more about their growth strategies. To begin, Spinny, which was founded in 2015, is expected to have a monthly car sales of 3000, which is roughly threefold of the sales they had achieved at the start of 2021. Spinny sells one car between 4 and 4.5 lakh rupees, generating more than 100 crore rupees in EBITDA. Next in line is Droom, which was founded in 2014 and brought in 135.5 crore rupees in the fiscal year 2021, more than doubling in the last three years. CarDekho, which has been around since 2008, brought in 884.4 crore rupees in the fiscal year 2021, which is 8 times their revenue of 114 crore rupees in 2017. Finally, Cars24, which was founded in 2015, brought in 2793 crore rupees in the fiscal year of 2021, which, like Cardekho, is an 8x increase from their numbers in the fiscal year of 2017. We don’t know how many cars they sold in the fiscal year of 2021. Though we do not yet have their exact sales figures, we estimate that Cars24 sold over 20000 vehicles in 2021, compared to 12500 vehicles in 2019. While we see each of these startups as successful in their own right, the overall growth is greater than the success of any one of these startups. Let’s take a look at some of the key reasons why these startups became unicorns.
Shift in Consumer Behavior
One of the primary reasons these unicorns are succeeding is a shift in Indian consumer behavior in the 2017 fiscal year. In India this year, 3.6 million used cars were sold, which is five lakh more than new cars at this point in time. India’s used car market had a bad reputation because it was mostly offline and lacked the quality standards that we see today. Despite this, the used car market outstripped the new car market. Because used cars are frequently significantly less expensive. However, there was clearly room for improvement. The consumer-centricity trend that we’re seeing in the space today wasn’t as prevalent back then, and the unicorns we have mentioned above were working hard to change this by 2019. Used cars sold 6 lakh more than new cars, which fell from 4 million to 3.4 million. Then, even during the pandemic in the fiscal year 2021, when both markets shrank, used cars still outperformed new cars. 3.8 million used cars were sold versus 2.6 million new cars, a difference of 12 lakh, the largest ever, and this gap is expected to widen by the fiscal year 2025 predictions. It is expected that the number of used car sales will more than double to 8.2 million, more than doubling the size of the new car market.
That is the primary reason these startups are becoming unicorns. They’re raising a lot of money from investors, and that money is allowing them to change consumer behavior, and changing consumer behavior is like a rising tide that lifts all boats. But now we must ask, “How are they changing consumer behavior?” How are these used car startups incentivizing people to buy used vehicles rather than new vehicles? We will write another post about how products influence changing consumer behavior in the near future.
Improved Shopping Experience
The current car-buying experience is not customer-centric, but rather company-centric. These automakers are old and have been around for decades, and customer centricity is not in their DNA. Customer centricity is a popular concept in the startup world. However, in the staid antiquated world of automobile companies, the customer’s needs and desires come second to the companies, which is where used car startups come in. They are causing disruption and innovation in the Indian automotive market. When you open a used car marketplace website or app, instead of 10 models to choose from, you’ll find hundreds based on every year, model, color, and company, as we’ve come to expect.
It’s the variety that startups provide, as we see with Zomato and Swiggy, which show us countless restaurants, or Netflix, which shows us thousands of movies and TV shows, or Amazon and Flipkart, which show us endless products; Spotify gives you non-stop music. We as consumers are accustomed to being spoiled for choice at this point, which is one of the reasons why car showrooms and even car websites are beginning to feel antiquated. They don’t have a lot of variety, and the price for this lack of variety is significantly higher than what you’ll pay on used car websites. Pre-owned vehicles are sold at a reasonable cost. All of the unicorns mentioned above have very appealing financing options as well; they’ve partnered with banks and NBFCs.
Building the Trust
Of course, the reason used cars are less expensive than new cars is that they are inherently less desirable or valuable. The cars have been used by another person, which means that they have suffered from wear and tear, which causes cars to deteriorate over time. This is one of the most common concerns for people purchasing used cars because they are concerned that the car will unexpectedly break down and cause them problems because someone else has already used the car before them. For many years, used car dealerships were unable to allay these fears. Typically, they would inform customers that the car had been repaired and was in good condition.
However, there was no proof or way of actually checking, and these promises were frequently made verbally by salespeople in order to make a sale. When startups arrived on the scene, they quickly realized that this was not a scalable method of selling cars. You must earn the trust of your customers if you want them to return and recommend your platform to others rather than leaving a negative review. That is exactly what used car startups have been doing for the last five years or so.
These unicorns ensure that any vehicles they list are serviced and repaired. They are subjected to numerous tests to ensure that they are in near-perfect condition, and any defects or problems are clearly listed online. The customer will know exactly what they are getting this way. However, if there is a problem, it is possible that the used car startup overlooked something. The car will then be returned with no questions asked, as these companies have excellent return policies. They also provide extensive warranties. To summarize, used car startups are doing everything they can to make the customer experience as frictionless and intuitive as possible.
Covid-19 Pandemic Effect
The Covid-19 is another driver of the growth of these used car startups. It first appeared in early 2020 in India, where public transportation was an important part of many people’s lives. Buses, metros, and cabs were common modes of transportation, and many of these people could afford to buy a car but chose not to because it would have been a waste of money. After Covid-19 swept across the country, purchasing a personal vehicle became significantly more appealing, as not having to share the same air and surfaces as thousands of other people became desirable. Especially after the second wave, which killed thousands of Indians.
However, the world was experiencing a chip shortage at the same time. If you’re wondering how the chip shortage affects you, here’s how it works. The average car now has around 1500 of these chips, which handle very small but very important processes within the car, and without them, car companies cannot manufacture cars. We require these chips because they are an essential component of automobiles in the twenty-first century. As a result, the perfect storm was created for used car marketplaces to thrive. The chips are already in place, the cars are already built, and with all of the customer-centric policies and offerings, a used car marketplace appears to be the best option for many people these days.
These startups have virtually eliminated every single pain point that customers who want to buy a car in India face today. They’re going out of their way to make the experience as smooth, affordable, and enjoyable as possible. As we near the end of the post, we’d like to hear your thoughts on whether these unicorns will stick to selling used cars or continue to innovate and disrupt. We’d like to hear your thoughts on this.