GMIL may steer dealers into used car sector

CHENNAI/NEW DELHI, JAN 27: General Motors India Ltd (GMIL) is exploring the possibilities of making an entry into the second-hand car busine...

CHENNAI/NEW DELHI, JAN 27: General Motors India Ltd (GMIL) is exploring the possibilities of making an entry into the second-hand car business. Though a final decision is yet to be taken, company sources said a move into the used car market would be a “logical course to take.” “We are certainly looking at the segment, but things are still at a nebulous stage,” company sources said.

“If we decide to get into the used car market, the first step will be to tie up with a finance company to provide the required working capital to our dealers,” sources said.

Some of GMIL’s dealers have already taken a marginal exposure in the used-car segment through exchange offers. But if GMIL decides to enter into the second-hand car market, it would perform support functions like financing the dealer’s inventory, while actual operations would be looked after by the dealer. “Besides setting up showrooms for used cars, dealers may also offer a warranty,” a company source said.

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“There is a clear need for a strong brand in the used car market in India. I think General Motors can bring in the credibility needed to fill the void,” a company source said.

Internationally, most car manufacturers encourage their dealers to deal with used cars too. “Though customers wanting to exchange their old car for a new one haggle a lot on the pricing of a new car, they are willing to compromise on the valuation of their used car. This gives the dealer a lot of room for leverage,” sources said.

Dealers will have other advantages too. Decent spreads that are there for the picking in the second-hand car business, will help them augment their margins.

This comes in handy in sluggish market conditions such as the one prevalent in India today. Secondly, dealers will be in a position to provide an additional service to the customer.

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The used-car market scene in India is currently dominated by small operators, mostly from the unorganised sector. Maruti Udyog dealers have recently decided to get into the business. Other car manufacturers are also likely to follow GMIL either directly or through their dealers.

This, industry sources feel, will benefit prospective buyers of used cars. The entry of respected names will make financiers companies more open to advancing loans for purchase of second-hand cars.

Sources in the second-hand car market in Chennai forecast a sharp increase in activity early next year. “With three new small cars and a couple of luxury models to be launched later this year, a lot of customers are likely to switch to the newer models,” they said.

The fresh supply is expected to drive down used car prices further. “Lower prices and availability of finance will make used cars affordable to a larger segment,” they said.