With around 65 lakh registered commercial vehicles including construction
and agricultural equipment in India, Shriram Automall India is bullish on the pre-owned CV business.
Shriram Automall India Ltd (SAMIL), which opened its 11th pre-owned commercial vehicle outlet in Hyderabad last month, plans to expand its all-India network to 60 by 2013. The wholly-owned arm of Shriram Transport Finance Company (STFC), this company deals in pre-owned agricultural and construction equipment as well, and has been set up as a one-stop shop for the selling and buying of pre-owned trucks.
Spread over 15 acres, the Shriram Automall in Hyderabad is part of an ongoing initiative by the company to corporatise what is largely an unorganised form of business. Apart from selling vehicles, one route of which is the auction in addition to direct transactions. Shriram Automall also provides financing and insurance facilities, all under one roof, and that, it says, is one of its key USP. SAMIL has set up truck malls at several locations including Ludhiana, Gulbarga, Cuttack, Pathankot and Aurangabad, to mention a few.
In an interaction with Autocar Professional at the inauguration of the Hyderabad facility on November 21, Sameer Malhotra, the CEO of SAMIL, said the company sources its products for the auction through its parent company, Shriram Finance. “The company is able to get between 15,000 and 20,000 referrals a year in this manner,” he adds.
Umesh Revankar, managing director of STFC, says the origins of the truck mall concept go back four years ago when the company realised that the unorganised nature of CV buying and selling was a niche segment badly in need of price transparency. So a truck bazaar concept was put in place and the early success prompted the company to spin off the business under the current concept. Needless to say, the parent company has brought to bear its expertise and reach in the CV finance business to build and nurture its
pre-owned truck business arm.
This kind of transparency that SAMIL practices commences with the vehicle that is sought to be sold being parked at the location for 15 days prior to its sale. “Since there are four to five potential buyers for each vehicle, both buyer and seller get a fair price," says Revankar, a 25-year-old veteran of the Shriram Group.
As the Automall concept gathered shape, Shriram inaugurated the first mall at Chennai in 2011. It drew upon its parent company’s one million customer base as it went about building the business. “We have always been in touch with those who want to sell. The trend we notice that that a sale of a CV typically can happen after a three-year period,” explains Revankar. Moreover, in the CV sector, buyers tend to upgrade from a small vehicle to a larger one and this was something that SAMIL was keen to tap.
For the potential seller, SAMIL offers three options. Apart from parking a vehicle at the company’s location for inspection by a future buyer, he can register with the company and have a picture of the vehicle and its details lodged in the company’s database. As a value-add, SAMIL also refurbishes the vehicle for a fee.
Asked where SAMIL gets its vehicles, Malhotra says that apart from referrals, the vehicles that it gets may be repossessed vehicles or in some cases, a field operator who has a 100 trucks who may want to sell twenty. The company’s model of business involves investment by the owner of the land on which the mall is based who receives a monthly rent.
Apart from commercial vehicles, SAMIL also sells construction equipment, small CVs, utility vehicles and pick-ups that are targeted at the tour operator market. Light commercial vehicles account for about 15-20 percent of the vehicles that come up for sale at the Automall.
According to Revankar, the potential for pre-owned CV is huge given that India has an estimated CV registrations of 65 lakh vehicles, exclusive of LCVs and pick-ups. This is the market that SAMIL is confident of tapping as it spreads its network.
SAMIL also spends a lot of time in the training of its staff as well as the potential customers. Says Malhotra, who doesn’t put a figure to the amount, “Since ours is a new concept, this training is essential. We do this in the form of video-based training.”
Demand for LCVs
Given that the country’s commercial vehicle segment is undergoing a slow phase with medium and heavy trucks posting lower growth and LCVs doing well, this has been reflected in SAMIL’s own business. According to Revankar, while heavy CVs bought and sold have fallen year on year by 16 percent, LCVs have gone up by 18 percent. At the auction at the Hyderabad Automall, there were clearly a high proportion of LCVs up for the auction.
The LCV business is a cash-and-carry one, says Revankar and is popular with small entrepreneurs or business as the credit cycle is of a shorter duration than is the case of higher CVs. However, underlying this trend is the increasing maturity of the hub-and-spoke operations, he avers. The demand for LCVs is now motivated by the need for fuel-efficient modes of transport and faster turnarounds. In the case of LCVs, even a lower freight revenues is less likely to have a less affect on vehicle trading.
Moreover, the business of used CVS is seeing a boom in the rural and semi-urban areas, a reflection of the spread of business as a result of better road infrastructure as well as the growth of cities beyond the original core. Take, for example, the Automall at Hyderabad is located outside the city as is the one inaugurated last year at Panvel, on the outskirts of Mumbai.
Malhotra describes the approach that the Shriram Group took to this business as conservative. The one lesson he says that the SAMIL has learnt is the importance of customer expectations. “We have to always be aware of improvements in customer experience and it will not happen in two years but will be ongoing,” he says. In addition, there is the all-important realisation that this is a long-haul journey. Apart from buyer expectations, he says that choosing an appropriate location is also paramount.
SAMIL’s all-India staff is about 800 and as the company grows, this will undoubtedly grow as well. According to Malhotra, there is no denying the importance of word of mouth in its line of business. However, the company has also gone online with the first online auction taking place in December last year. But the crux of the business, he adds, is word of mouth. "We keep in touch with our potential client base by sending SMSes too," he signs off, indicating that technology too is playing its role in the changing chapter for SAMIL.