Real Economy Check: Real Estate, Not Financing, Is A Problem For Used Car Dealer Broker Dalal Premium
Easier financing has been supporting sales. But high real estate prices pose a problem for Broker Dalal Premium.
The slowdown in India’s automobile sector may or may not reverse soon but demand isn’t the primary problem for used-car dealer Broker Dalal Premium.
“From a Rs 1-lakh car to a Rs 1-crore car, there’s always a 30-40 percent saving in those (used) cars. So, there’s always a demand for pre-owned cars and that if you have the right car, it’s going to sell,” Ashish Merchant, partner at the decade-old dealer for pre-owned cars, told BloombergQuint on Real Economy Check—a special series on India’s small and medium enterprises.
Indians have been spending less on brand-new vehicles over the last one year, leading to the worst automobile slowdown in more than a decade. That’s also reflected in economic growth that fell to its lowest in six years. But used cars have been an outlier. The market for pre-owned cars grew at 11 percent annually over the last seven years compared with 4 percent for new vehicles, according to a report by Edelweiss. And most of the surge in sales was led by easy availability of finance, BloombergQuint had reported earlier.
Easier financing has been supporting sales. Prior to the slowdown, only 50 percent of customers at dealerships sought loans, Merchant said, adding that’s increased to 80 percent. “Banks are supporting us. They are giving us good commission to promote funding, and interest rates have gone down for pre-owned car loans. First, the rates were in the range of 13-14 percent. Now, they are at 11-12 percent. So, it has helped us a lot in taking care of our financing for our clients.”
But there’s one problem. “Being in a city like Mumbai, the challenge is space. We want to increase our inventory, but we don’t have the space. Real estate rents are very high. That’s the biggest challenge. We have to look at an alternative to go a little far but let’s see how it works in the future.”
Watch the full interview here:
Here are the edited excerpts from the interview:
First off, before we start with anything, let’s talk a little more about you and your company; the size, the scale, your business?
So, my company is Broker Dalal Premium. We started in 2009, it’s been about a decade since we started this business. We started with zero cars in the inventory and we have built it up to over 125 cars in stock right now. So, it’s been a great ride and every month-on-month, year-on-year, there is a growth that we’ve been witnessing and more interestingly, used car buyers are coming up with all the media hype happening around the taxation reforms.
What would your turnover be?
We are doing a yearly (turnover) of about Rs 50 crore in sales. We plan to double our inventory. We have issues of having less supply of cars. But that’s a good issue to have though.
So, is that because you feel that there is a sentimental shift in consumers’ mind? As in, the focus is shifted from the new car market to the secondary car market?
Yes, of course there is. I have to agree to that. Because everyone wants to save money. We have a money-saving product. Who does not want to save Rs 20 lakh on a luxury car. We are giving warranties on cars in stock. So, you really don’t need to worry about the cars we supply and a handful of good dealers in the market—pre-owned car dealers and organised dealers like us are taking the benefit of this ride.
What I wanted to understand from you is with regards to the slowdown, how much have you been impacted on-ground?
It’s the mood of buyers. They’ve just delayed their purchase mood. Everyone has the money, there is a slowdown, but everyone has delayed their decision to buy the product. So, the benefit what we have in the slowdown is, the new car prices are extraordinarily high. A Rs 80-lakh new car is available at Rs 60 lakh in the pre-owned market just in a year. It affected us positively on that.
With regards to the segments of cars as well, are you seeing a shift where people are looking to invest in a smaller purchases?
Cars are expensive in the new car segment. So, a car which is Rs 20 lakh is available at Rs 15 lakh. Again, you want to save that 30 percent so there is no shift in the segment but there is a better opportunity to buy pre-owned cars because you’ve got a lot of varieties to buy in. So that’s a positive side in the pre-owned car market.
So, you’re saying that demand is not a challenge for you?
Yes, demand is not a challenge because we are a saving-the-money product, right? We are saving money for every product we have. So, from a Rs 1 lakh car to a Rs 1-crore car, there’s always a 30-40 percent saving in those cars. So, there’s always a demand for pre-owned cars and that if you have the right car, it is going to sell.
What about financing? Has funding become an issue? Because you would require funding to build up inventory. Are banks being more tight-fisted?
First, on our sales, we used to have only 50 percent of the clients taking funding. Now, its increased to 80 percent. Banks are supporting us; they are giving us good commissions to promote funding and interest rates have in fact, gone down in pre-owned cars. First, they were in the range of 13-14 percent. Now, they are at 11-12 percent. It has helped us a lot in taking care of our financing for our clients.
Alright, for yourself though, for funding inventory?
We do not take too much funding for our inventory. We try to play around with our own money. But, yes, for our own inventory funding also, it’s (cost) reduced over time. First it was expensive and now it has reduced. Banks are also supporting us.
So, cost of funding is not a challenge for you?
It is. It is expensive for inventory funding but for the end-user, the clients, it’s not.
So, you are seeing that shift, that there is no drag or a slowdown with regards to second-hand car purchases and finances for second?
Yes. I don’t see that happening. As long as the organised players are doing good and clean work.
So, what do you make of these discounts that most of the other companies are offering on first-hand cars? And do you see it weighing down on prices that you have to offer?
That is one of the most important questions you asked me right now because the new car weightage as it goes down, benefits us a lot. We buy cars cheaper so we can give those cars cheaper to the end-users. I’ll give you an example. A Rs 1.4-crore BMW is available at Rs 1.10 crore. That same car which we used to buy at Rs 70-80 lakh, we are buying it at Rs 55-60 lakh. So, the new car discounts have impacted a lot in the pre-owned so you can buy it cheaper. Of course, people know the new car prices right now.
Doesn’t that mean that your margins get a little bit squeezed? Doesn’t it happen?
It does.
A customer would want a fair deal from you as well.
It does. So, if you have a backlog of inventory, which many dealers have, then that’s a problem. Because then, you just collect the inventory and don’t sell it so.
How fast moving is your inventory in this period of slowdown? Say, from a monthly point of view, how many cars can you turn around, vis-a-vis a good period?
So, we want to target it over to a 100 cars a month. But we have a 45-day to 60-day period to turnaround the cars because it takes time—to procure the car, to make the car ready, get the financing done, get the delivery done- the process. So yes, there are some cars which are done in 20 days, 30 days also. But on an average, it is 45 days.
So, you’re saying footfalls for second-hand car markets have not a seen a dip in the slowdown?
No, I have not seen it. In fact, the last two to three years, there is so much hype in the used-car market plus so many organised players coming in, it is helping us a lot. So, I don’t see a dip happening there.
What could be a challenge according to you? Right now, even in a period of slowdown you are saying that it has not impacted you. What is a challenge that you say you could face?
Being in a city like Mumbai, the challenge is space. So, we want to increase our inventory, but we don’t have the space. Real estate rents are very high so that is the biggest challenge. I want to get my inventory doubled but I don’t have the space to do it so, we have to look at an alternative to go a little far but let’s see how it works in the future.
So, it looks like at least for the second-hand car market and your dealership, there is not much of an impact of the current economic slowdown?
Hopefully it stays that way.