autoX: In terms of the development of the organised pre-owned car market, are you surprised that it hasn’t developed faster than it actually has – especially with First Choice being around for some time? Other players like Carnation Auto have also been looking at entering the multi-brand used car space, but now they’ve shifted their focus to service and spares?

Rajiv Dubey (RD): We can only say that where there is good business and money, there will be competition. So, by way of the laws of economics, where there is a return on capital, enterprises will come there. Then, it is only the strong and fit who will survive, and the others will go. In terms of our plans, we are very bullish about our business.

Shubhabrata Saha (SS): All of the major OEMs have stated their intent to be in the pre-owned car business. Used car play is a function of technical and commercial capability, and there are only a few players in the market who can provide technically trained manpower capable of addressing both technical and commercial requirements. Fortunately, over a period of time, we have been able to develop this aspect. It doesn’t mean that we are fully there, but having being there and seen it, it gives us a distinct edge.

AX: Give us some sense of the opportunity you see in the organised pre-owned car space in India?

RD: The overall used car market is larger than the new car market. By 2015, our target is to reach at least 100,000 units. But, given the current situation, we might be able to achieve these numbers before that prescribed time period.

SS: The way I see it is that Mahindra’s opportunity is expanding by the day – we are there from two-wheelers all the way up to large trucks and yachts. We also in the process of making air planes, and we continue to evaluate new opportunities all the time. But I think the overall opportunity in the automotive and farm equipment sector is very large. My sense says that, at First Choice, we should be able to double the business in the next couple of years.

AX: Is it a good sign that some of the luxury car makers have taken the step to actually implement their own official used-car networks?

SS: We’d love to see more organised players enter as it increases the choices that are available as far as inventory is concerned. The fact is that if you look at last year’s growth, the overall used-car market grew by 20%, but the organised pre-owned car market grew by over 40%. So consumers are moving towards the organised segment, so the more the merrier.

AX: Given that Maruti has a stronghold in the pre-owned car segment, and also the fact that they are the biggest manufacturer in India, how do see rival businesses like Maruti True Value affect your business?

SS: We are very happy that more and more launches are taking place in the B and B+ segments. This provides us with a larger inventory of cars, and that will also have an impact on the way the pricing of cars plays out in the future. One cannot erase the fact that Maruti consists of 55% of the market in India.

AX: Talking about segment segregation, what kind of volumes does First Choice have in terms of small cars, mid-sized sedans, SUVs, premium cars, etc.?

SS: The A segment, because of the Maruti 800 exiting that space, isn’t seeing much traction. The B and C segments, however, are experiencing interesting action. If we look at last years’ statistics, the B segment stood at 40%, and the C segment was about 45%. This year, within the first quarter itself, we are seeing trends towards the C segment, and that share has moved up to 60%. In fact, if you look at last year, our average selling price for cars was around 2.5 lakhs in Delhi – it’s inching towards 3 lakhs this year.

AX: Are you seeing the age of the inventory, in terms of the number of years a car is owned and then it comes in to you for resale, going down?

SS: I think that is a reflection of what consumers are doing. Consumers are changing cars in three-to-four years, instead of five years, and that is likely to get reflected in the age of cars that are available. I must also mention that we do not buy cars above 60,000 kilometres. We want the freshest cars for the customers, and with anything above that, it becomes very difficult to determine the quality.

AX: How do you verify that the mileage on the clock is accurate?

SS: Good question. The interesting bit is that we only buy one-fifth of the cars that we evaluate – so therein lies the answer in terms of our ability to figure that out.

AX: In operating a franchise, do you provide the training initially, and then leave it up to the franchise owners to run the show?

RD: Definitely training is a very important part, because what are we giving a franchise owner – we are giving him processes, systems and training. The training is given on how to procure, sell, and how to behave with customers – and that mindset shift is important. We also have a process to get feedback from customers. We have something called the CAP (Customer as Promoter) Score. There is only one question asked – on a scale of 0-10, tell us how likely it is that you would recommend this company to another person. Then we take the ratio of this score for all customers, and arrive at a net promoter score. And that has to be positive – it has to be moving up. It’s an important metric that is used in the performance management system of all Mahindra businesses.

SS: Even before an outlet starts, there is something called the pre-sales process in our business. In the pre-sales process, the franchise owner understands the terms and requirements, as per our norms. Second, his people undergo process training, only then do people actually undergo actual on-ground training. There is a 90 day compliance plan. At the end of this plan, we also have an audit mechanism, which is conducted on a regular basis.

AX: Almost 80 percent of your sales come from A-class cities. How are you planning to penetrate into the Tier 2 and other smaller towns?

RD: We are already there. It is mostly through the franchise network because these are people who know the market. So it’s unlikely that we would set up a company-owned, company-operated superstore in a smaller town. So, the expansion into the B & C cities would largely be through our franchise network. The competence of the sales professionals and franchisee will be at par with our norms elsewhere in order to deliver the same customer experience.

AX: How will the implementation of the Bharat Stage Four emission norms affect your business – will it affect your ability to procure inventory?

SS: I will not make a sweeping statement on this because I don’t have data and statistics on the number of cars sold that were BS III and BS IV compliant. But, if we look at the industry approach, Maruti did a phased launch of new vehicles, and has moved the Maruti 800 out from 13 cities. The fact is that the A segment decline is because of that. The Maruti 800 used to be the highest selling car, and now it’s the Alto. And the same scenario is getting reflected in the used car market.

AX: You have plans of selling 100,000 cars by 2015, and reaching a revenue of 2,500 crores. What are your operating margins?

SS: We would not put up company stores and open new franchises if we were not making money. We are at the investment phase of our business today, and, in this phase, we are looking at developing all the systems, processes, setting up the network – and that’s where the money is actually going. We are seeing fairly stable gross margins despite a lot changes in the market. The graph is consistent, and, as India upgrades, I’m hopeful that this will make a positive impact.

AX: You spoke about the online space, and your intention to launch an e-commerce driven platform – how is that shaping up, and how much will it drive your sales?

SS: Online, we can be in the B2B, B2C, C2C, C2B platforms, and so on and so forth. There are vast opportunities available. The fact is that we have the distinct advantage of being an offline player as well as an online player. By being an offline player, our understanding of cars is certainly there, our understanding of pricing, refurbishing, and service is there. We also indulge in the warranty and financing of cars.

So, frankly, we think that if the online and offline play is handled well, it can make a mark. But, having said that, it will take time. It’s not going to be easy, we need to establish ourselves, and, moreover, the culture of mainstream online play is still some distance away.

AX: Will mobile technologies like 3G play an important role in the online space?

SS: We do foresee 3G playing out as a facilitator. Any technological enabler that will bridge the gap between businesses and customers will naturally increase the speed of transactions. Anything that engages the customer will help.