In a surprising turn of events, CarDekho, one of the leading players in India's used car retail industry, has made the decision to shut down its retail vertical. This move comes amidst a booming market that has seen competitors like Cars24 and Spinny thrive. So, why did CarDekho choose to exit the game?
Running a retail business in the used car industry proved to be a costly endeavor for CarDekho. Despite their best efforts, the company continuously lost money in the B2C model. The high costs associated with parking, showrooms, and manpower were eating into their profits. They simply couldn't find a path to profitability in this competitive landscape.
To understand the specifics, let's take a closer look at the business dynamics. CarDekho would purchase a used car for Rs 5 lakh and sell it for Rs 5.5 lakh after three months, making a margin of Rs 50,000.
However, when you consider refurbishments, parking expenses, interest on debt, manpower costs, and various other expenses, the company was losing anywhere between Rs 30,000-35,000 on each transaction.
Unlike dealers and brokers who operate with lower overhead costs and benefit from quick turnover, CarDekho's model required longer holding periods and higher expenses.
Dealers often rely on word-of-mouth referrals, whereas CarDekho had significant costs associated with technology and customer acquisition.
At its peak, CarDekho's retail business sold approximately 800 cars and invested around $20-25 million.
However, the company realized that the challenges outweighed the potential profits in this highly competitive and unorganized market.
While CarDekho's decision to exit the used car retail business may come as a surprise, it highlights the complexities and economics involved in this rapidly growing industry.
As the market continues to evolve, players will need to find innovative ways to navigate the challenges and find a sustainable path to profitability.