As a financier and service provider in the pre-owned vehicles segment, Bike Bazaar is bracing for the rollout of scrappage policy. Sumesh Soman looks at the value proposition and impact on the components ecosystem as a crucial subset.
The verdict on the scrappage policy is a split one! Divided between an opportunity on one end of the spectrum and a threat of negatively impacting the pre-owned vehicle segment. Warranting a voluntary scrappage, restricting the life cycle of a vehicle to 15-years, the latter segment, has some stakeholders concerned about the business running into third and fourth owner hands being impacted. Here, financier and service provider of pre-owned vehicles, focussed on two-wheelers up to 500 cc, Bike Bazar, has sensed an opportunity. Averred Srinivas Kantheti, Co-founder at Bike Bazaar and Ex-President, Bajaj Auto – Two-wheelers, Domestic Sales, “I don’t think it impacts us negatively at all. We do not look at vehicles beyond eight or nine years. We are focussed on the scrappage value which will be credited to the customer.” “We expect the customer to invest in a new vehicle and especially when there is a demand for electric two-wheelers. The scrappage policy can prove to be a useful push for our business,” he opined. Admitting to it being early days to gauge the impact of the rollout in-depth, Kantheti drew attention to the pilot commencing in select pockets ahead of a national rollout.
The marketplace dynamics
Bike Bazaar earns 65 per cent of its business from the rural districts. This is expected to go up to 75 per cent by 2026. “So we have to see how the scrappage policy will impact rural areas, and how the government will be able to enforce it beyond the urban metros. It’ll be great if we’re able to do it actually,” he quipped. As per Kantheti, the phase-wise implementation will kickstart from tier-1 cities and based on the success of the pilot be extended to tier2 and tier3 regions. “It will take a good amount of time for the scrappage policy to function across the country seamlessly,” he opined. Kantheti explained the impact on the components availability and aftermarket ecosystem. It is expected that scrappage policy will result in increased domestic availability of critical parts and raw materials known to be imported on a large scale. “The scrappage policy will help in generating widespread availability of components like electric fitments. Careful removal can result in making them fit for use in new vehicles,” he explained. He deemed that public response to the policy will be instrumental in the success or failure. One can expect these incentives to get better as the policy and its functioning mature, he said.
Through a mix of brick and mortar and online sales, the company expects traction leading up to the festive season. Of the opinion that the unorganised retail in the pre-owned vehicle commands unduly high margins, the company’s franchise model looks at moderating such unrealistic expectations of those wanting to partner with the company. “We want a franchisee who is ambitious, who says look I will sell about 100-150 vehicles. My margins will be lower but my overall profits will be higher because I’ll sell more vehicles and ensure that the customer gets a good deal,” explained Kantheti. The company is content associating with established dealers who in turn are known to have a well-oiled sales and service mechanism given that it implies a seamless, forward integration. The company has learnt to sustain business and live with the pandemic.
Growing at a 100 per cent rate with each passing year, Bike Bazaar has one per cent of its business accounted for by EVs as per Kantheti. “We are building a strong EV business both in leasing and financing. We are also building a strong services business. The aim is to become the largest EV leasing company,” he mentioned. Advising startups looking at turning a lifecycle company, concluded Kantheti, “If anybody wants to build a lifecycle company, now is the time. If you start financing vehicles, instead of buying 10-year old vehicles customers will start buying three to four-year-old vehicles. Our aim is that the new vehicles must change hands within the third or fourth year so that there is a good amount of life left for those following two or three change of hands.” ACI
The Blueprint
The new scrappage policy targets curtailing India’s carbon footprint by segregating vehicles and scrapping them to realise a circular economy. Instead of capping a limit on the years of the vehicle, the policy allows it to be driven or driven as long as it can meet the regulation and clear the quality checks. Scrappage is voluntary. There are stipulated guidelines on the vehicle’s registration renewal, hygiene mandates for testing and inspection as well as incentives payout to owners who scrap their old vehicles. It is expected to encourage owners with old and unfit vehicles to dispose of them to upgrade. Expiry of registration fails the fitness test, damage owing to natural calamity or an accident and or the vehicle being impounded by authorities warrant scrappage. Apart from the above mentioned, decommissioned government vehicles and abandoned vehicles also qualify. The government plans to set up 75 inspection centres in the first phase, 26 of them are claimed to be operational. 450 inspection centres could be operational across the country. Over 60 scrapping facilities could open across the country in the next four to five years. These facilities will link back to the VAHAN database. Among government registered recycling centres are CERO – Mahindra MSTC Recycling Pvt. Ltd. and Maruti Suzuki India and Toyota Tsusho Groups’ advanced facility in Noida under a dismantling and recycling JV. Tata Motors’ will also set up a Registered Vehicle Scrapping Facility (RVSF) in Ahmedabad, for end-of-life passenger and commercial vehicles.
Finance And Services In The Pre-owned Segment
Srinivas Kantheti, Co-founder at Bike Bazaar ( Ex-President, Bajaj Auto, Two-wheelers, Domestic Sales ) in an upfront conversation with Sumesh Soman, shares the outlook on the pre-owned
two-wheelers segment.
Q. What drew you to co-found Bike Bazaar? How has your knowledge and experience at Bajaj Auto come into play?
A. I have been working for Bajaj Auto for almost 15 years across various roles in the organisation. I would like to cite two critical roles, heading the ‘Auto Finance’ division under the umbrella of Bajaj Finserv, the capital finance arm of the company for two-wheelers and three-wheelers manufactured by Bajaj Auto. Over the three and a half years of my tenure, we focussed on penetrating deeper into the rural markets with finance as a differentiator. And Bajaj Finance did extremely well on key metrics. On taking over as President – Bajaj Auto for the two-wheeler segment, I looked at the front end involving sales, service, spares, dealership, dealer management, marketing and brand building to name a few. It’s strange how there are multiple car manufacturers in India, but only so many two-wheelers manufacturers in comparison.
This is a worldwide phenomenon and it surprises me since two-wheelers are the apt mobility solution for this market. 80 per cent of the auto industry constitutes two-wheelers making India, the largest two-wheeler market. India has now become without doubt the R&D capital of the world. So, you can be anybody, for instance, a Triumph, a Harley Davidson, a KTM, and if you want to compete in the global market, you have to have a strong R&D partner in India. Lesser than 500 cc bikes are a majority of the market. Globally, 95 per cent of the market is sub-500 cc. India makes real competitive cost structures possible.
When I left Bajaj Auto, I was very clear that I wanted to do something in the two-wheeler space. And that’s when we started realising that there are a lot of white spaces in the ownership, ridership model. On average, a two-wheeler changes hands, about four to five times before it’s time to scrap it. With the rollout of the new scrappage policy, that lifespan is set to 15 years. Today, there is no company that hand holds the customer throughout that cycle. This includes buying, selling and servicing, including insurance. The customer is actually lost, as far as the OE sales lifecycle is concerned. So, Bike Bazaar is a concept wherein we want to be along with the customer through the entire ownership, ridership cycle. And, I think there are a lot of opportunities to touch base and create a relationship with the customer. We started in 2017.
Q. What does your warranty on pre-owned bikes cover? How do you ensure this on critical components like engine and gearbox for instance? Is it supported by testing and validation?
A. We carry out a full checkup. This is spread out over two stages. When we buy the product from an owner, we take photographs of the product, and audiovisuals of the vehicle to gauge the sound and emissions for instance. This helps us value the vehicle. The seller gets access to the quotation in a quick turnaround time of 30 minutes. The purchased bike is refurbished as per the standard packages and SOPs. It entails checking the brakes, checking the carburettor, checking the electrics, looking at oil changes, the battery unit, and tyres. We also look at the fit and finish like body dents and paint coat post which we are able to offer a six to eight-month warranty to the new owner. We do not find any engine issues because these bikes are inherently good skeletons. They also pass our stringent quality checks. We are now developing machine intelligence and machine learning capabilities. We have a database of almost 250 odd bikes with feedback from all checkpoints. It helps us ascertain maintenance costs right down to the consumable.
The warranty covers the engine and the gearbox, the most critical components. It doesn’t extend to wear and tear due to poor riding habits, for instance, to the brake liner or the clutch replacements. Today the claim on the warranty is less than one per cent. So, obviously, we are doing something right, in terms of ensuring that we are actually getting the right product out into the market.
Q. How do you expect the electric two-wheelers to contribute to the mix?
A. We are one of the few companies that deal with electric two-wheelers as a product. We don’t cater to it as a personal loan like the industry practice is. We buy credit the way we buy credit for a conventional two-wheeler. So, that means in the deep rural of Tamil Nadu we are financing electric two-wheelers today, which nobody else does. Electric two-wheelers constitute one per cent of the market. And we see that growing rapidly and in about five years time anywhere up to 10-15 per cent. I have met a lot of customers for whom the biggest concern is the OEM warranty on the battery pack. If that warranty is two years and we give a three-year warranty, what happens post that period there are no takers for the out of warranty battery pack. Despite the vehicle in-warranty remaining valid. If one were to benchmark with a Tesla which runs even 10-years into the lifecycle, there is a lot of work that the electric two-wheeler industry will have to put in to ensure the battery life.
Here ridership will become more important than ownership. So again, leasing may become a very good option. We are also into the Business to Business (B2B) segment of leasing. Today there is a waiting period for electric vehicles hinting at a shortage. Here, there’s a huge amount of potential for auto suppliers to ride this wave and start developing indigenous products. I understand that people are setting up battery plants and other infrastructure in India. In my opinion, it will give a big boost to the components industry!
Q. In this segment, did you have to face a shortage of critical parts, say electronics or performance tyres?
A. There’s definitely a shortage of electronic parts. I’m talking about up to 500 cc kind of bikes because most of these are important, and they’re coming from the China supply chain that has completely been disrupted. Today there’s a waiting list for new bikes. It is a supply-side constraint that has restricted imports. There’s not much of a problem with the normal parts. ACI
