Taking the used-car route in a downturn

Taking the used-car route in a downturn
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First Published: Mon, Feb 09 2009. 12 51 AM IST

Gearing up: VeriCAR’s Jayesh Jagasia inspects a car. Jagasia believes the used-car market can yield better results during a downturn because more people opt for second-hand cars rather than new ones.
Gearing up: VeriCAR’s Jayesh Jagasia inspects a car. Jagasia believes the used-car market can yield better results during a downturn because more people opt for second-hand cars rather than new ones.
Updated: Mon, Feb 09 2009. 12 51 AM IST
Mumbai: When the party was still on in the venture capital world and start-ups were mushrooming across the country in the boom years, Jayesh Jagasia and Karthikeya Singhee gave no thought to setting up their own company. But two months after the market meltdown in September, a late-night conversation convinced the friends there was a market gap they could fill.
Gearing up: VeriCAR’s Jayesh Jagasia inspects a car. Jagasia believes the used-car market can yield better results during a downturn because more people opt for second-hand cars rather than new ones. Abhijit Bhatlekar / Mint
Jagasia was to move to Russia as deputy general manager with commodity trading firm Olam International Ltd, while Singhee was hosting The Auto Show on CNBC TV18. The two automobile enthusiasts quit their jobs and spent two months turning the idea of a used-car advisory service into a proprietary firm called veriCAR that launched in January.
The Mumbai-based company offers guidance to customers looking to buy a used car in the market and conducts tests to verify the physical and mechanical conditions of the vehicle, in exchange for a fixed fee. In the last month, it has worked with 15 customers to close their transactions and has received an additional 100 enquiries.
“Used cars is typically a distress industry, and with the economy slowing, we believe more people will go in for a used car rather than a new one,” reasons Jagasia.
VeriCAR services two kinds of customers—those who know what they want to buy and want to hire professionals to check the car’s condition, and those who simply know they want to buy a used car. In the latter case, the company does the initial research, zeroes in on three cars within the budget and range specified by the customer, inspects each, and submits detailed reports back to the customer within three working days.
The fee is fixed based on the service, regardless of the transaction value. For example, the company charges Rs999 for inspecting the first vehicle, be it a mid-size, premium or luxury car. “This allows us to be brutal in our opinions, since we have nothing to gain by selling a higher value car to the customer,” says Jagasia.
Jagasia estimates that about 1.3 million used cars are sold in India in a year. A majority of used-car sales are in the unorganized market, but a few online players such as Carwale.com, run by Automotive Exchange Pvt. Ltd, and eBay India Motors, the online auction firm eBay Inc.’s B2B portal for used cars in India, have also been tapping the market.
“Certification of used cars is a significant need of the (auto) industry,” says Rajan Mehra, venture partner, Clearstone Venture Partners, of the market opportunity for an advisory service. Mehra was country manager for eBay India, where he led all its businesses, including eBay India Motors, before turning venture capitalist. “From an investor’s perspective, the question for any company in this space would be how to scale the business across geographies, since cost of human resource tracks revenue all the time.”
To expand its customer base, veriCAR says it is exploring partnerships with online players to offer an end-to-end buying experience for its users.
Passion for machines
Most of the duo’s working knowledge comes from past experience test-driving vehicles. Jagasia and Singhee, both in their late 20s, met in Pune in 2005 as correspondents for CAR India and BIKE India magazines before their paths diverged a year later.
Jagasia went on to get an MBA from the Indian Institute of Management, Kozhikode (IIM-K), while Singhee moved to CNBC TV18.
“Neither holds a degree in auto engineering, but we both share a passion for all things mechanical,” says Jagasia, who studied computer science and worked as a software engineer before writing for the magazine.
After his MBA, Jagasia meant to work in the auto industry and even interned with Tata Motors Ltd for a few months, but eventually ended up with a job in the Vietnam office of Olam International. “We were very good friends who always dreamed of starting something together,” Jagasia says of their decision to start veriCAR.
At the time of his graduation last year, campus placements were still going strong. “The average salary was Rs14.5 lakh and every single person had four job offers,” he recalls.
He wants to offer jobs in his firm to worried juniors in the current batch, but cannot match their salary expectations or allay their fears of joining an early stage start-up without funding in a down market.
The biggest challenge to growth, he says, is reaching out to potential customers in a cost-effective manner. Most of its initial capital of Rs3 lakh was spent in media advertising online and with select auto supplements of newspapers. “Our website is our biggest billboard, but most of our transactions happen offline,” says Jagasia. His IIM-K alumni connections helped secure the first few transactions.
Misdirected enquiries
The company also gets a lot of misdirected enquiries, throwing its call-to-customer conversion estimates off the scale. “Most people think we are either buyers or sellers of used cars and we spend time explaining what we do and why we can’t get them a discounted deal,” rues Jagasia.
That veriCAR should be perceived as an unbiased, impartial consultant on the buyer’s side is very important to the team. While it is building a database of used cars by talking to dealers, Jagasia stresses that “we only establish contact with dealers to get their stock list, and we don’t charge for it”.
This may actually eliminate some alternative channels of revenue for the company through matchmaking between customers and dealers. “Online portals charge money from the sellers, whereas we collect our fee from the buyer.”
The company has not approached investors yet, planning to do so after March, “with proof in hand that the system worked and we made money”. It currently offers its services in Mumbai and its suburbs, but plans to expand to other cities if it receives funding. At present, the team comprises the founders and two motor vehicle mechanics trained at the Industrial Training Institutes in Mumbai. As the business grows, the company plans to hire senior managers with academic qualifications and work experience in the auto industry.
Despite the challenges, the duo has no regrets starting out in a tough market. Both families—Jagasia’s father runs an anti-corrosion business while Singhee’s family owns snack factories in Nagpur—have been supportive of their venture. “We don’t know how it would be to start in a good time,” says Jagasia, “but it’s been very fulfilling to start on our own”.
This is the third in a series about entrepreneurs starting businesses during the economic slowdown. Next: A textile exporter goes Polynesian.
namitha.j@livemint.com
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First Published: Mon, Feb 09 2009. 12 51 AM IST