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Digitalization Transforming the Used Car Industry in Indonesia

21-Jan-2021   Mr. Johnny Widodo, Designation: CEO, OLX Autos Indonesia   Author: Aashima Mendiratta

The used car market in Indonesia is one of the largest markets in Southeast Asia. Traditionally, independent dealers have dominated the space. However, with increasing internet penetration in the last few years, the market has witnessed the entry of various specialized auto focused platforms.
In conversation with Mr. Johnny Widodo, CEO at OLX Autos Indonesia, we try to understand his perspective on how the pre-owned car industry is evolving. We also attempted to explore the positioning of the platform in the fragmented market, the perception of consumers towards used cars amidst Covid-19 and the future prospects of the industry.

Here are some edited excerpts from the interview:

Q. How is the Used Car Industry positioned in Indonesia? As per our research, approximately 2.5-3 million used cars are sold annually, growing at a rate of 7-8% on YoY basis. Do you agree with our estimates?

The used car industry in Indonesia is similar to other emerging nations. In the pre-pandemic scenario, the new car sales reached about 1 million, which translates to roughly 2-3 million used cars being sold on yearly basis, including both C2C and B2C transactions. On the dealers’ side, it is a highly fragmented market with a lot of local dealerships present across the country. There are approximately 150-200 thousand entities in the industry, including middlemen and agents, majority of which are independent dealers.
The huge internet penetration in the country on the other hand has accelerated the digitalization of the used car industry. As consumers are becoming more tech-savvy, they place more trust in online platforms and even Omni-channel experiences.

Q. How has the industry fared in 2020 amidst the Covid-19 pandemic?

In terms of used car listings, we saw a drop of about 15-25% in 2020 as compared to the previous year as an impact of the pandemic. Large-scale social distancing imposed during the year and mobility restrictions contributed to the decline in used car sales. In December 2020, the used car sales however bounced back and increased by 10-15% during the month as compared to September 2020. In our own study titled Used Car Industry Behavior Shift in December 2020, 52% respondents said that they still want to buy a car, which was higher than 32% in another study, in the beginning of the pandemic. This indicates the recovery of the industry and positive consumer sentiment.

Q. The used car ecosystem in the country can be segmented into organized and unorganized channels. Organized includes multi-brand outlets & OEM certified pre-owned dealerships having multiple branches across the country while the unorganized space consists of small dealerships as well as C2C transactions facilitated by online platforms. Basis upon on this, how would you say that the industry in Indonesia is positioned? Is it inclined towards organized or unorganized?

The market in Indonesia is highly fragmented. Majority of the transactions take place through local dealerships or are C2C. So, the unorganized channel pretty much dominates the industry. On the organized side and amongst multi-brand dealers, Mobil88 is the largest player in the industry.  There are other smaller multi-brand dealerships as well as auctions of repossessed cars.

Q. How does OLX Autos position itself in the industry? How is the platform able to differentiate itself and its offerings from other platforms in the country?

We at OLX Autos are determined at strengthening the used car market in Indonesia.  Our initial model focused on instant car selling wherein the customer fills the details on our portal and gets the car inspected either at home or in one of our centers. The car is then sold within 1 hour if the seller accepts the price. Apart from this model, we have made few additions to our business. Firstly, we have collaborated with around 13 dealers across Indonesia called OLX Autos Authorized Dealers. We help them to grow their business by the means of acquiring good quality cars, listing management, inventory management as well as effective marketing strategies. Buyers buying used cars from these dealers will receive a vehicle inspection certificate which leads to more trust. The dealers also are able to grow by leveraging our brand name. Secondly, we have set up two stores with buy, sell and trade-in facilities. On buying cars from these stores, customers get 7 days return guarantee, 30 days engine warranty, comprehensive car inspection, home test drive and 1 year buy-back guarantee.

Q. How has the integration with the OLX Group and rebranding of OLX Autos contributed to the platform’s penetration into the pre-owned car segment?

OLX itself is the largest online classified platform in Indonesia and automotive has been one of its strongest categories. OLX Autos on the other hand has presence in more than 8 cities with 100+ inspection centers and 4,000+ dealer partners.  Integration of BeliMobilGue & rebranding as OLX Autos has helped OLX Indonesia expand from merely a classifieds listing platform into a complete transactional marketplace.

Q. Which brands and types of cars are currently leading the industry on the basis of number of used car sales?

The used car industry follows the new car sales, with Japanese brands dominating the used car sales. On the basis of type of cars, MPVs are preferred by majority of consumers as they are perceived as family cars and also due to the terrains in the country. Toyota Innova, Toyota Avanza, Honda Jazz, Daihatsu Xenia and Honda Brio are the best selling models.

Q. How has the average car ownership period among consumers evolved in the last few years?

Typically, consumers in Indonesia tend to sell cars between 3 to 7 years.

Q. What plans does OLX Autos have for the future? Does the company have any exciting new service offerings or growth plans in store in the coming years?

We currently aim to focus on providing consumers a seamless online experience through the three service offerings that I mentioned earlier. Many consumers are still semi-online and it takes educating prospective buyers and sellers to facilitate the shift towards online platforms. In the future, we are also looking at adoption of latest and enhanced technologies such as artificial intelligence for identifying the scratches and car condition via uploaded images for estimating the price, without having to bring the car to our center.

Q. What are the innovations and trends that the industry might witness in the future? What growth rate are you expecting for used car sales in the coming years?

First of all, I expect that the traditional dealers located in used car lots in the country would shift online to cope up with changing consumer preferences. There might be different variations as to how these dealerships increase their online presence. Some of the bigger retailers might come up with their own apps or websites. Secondly, disruption in different business models is expected by offering varied services such as subscription services where consumers can use the car for few months or years and then return it to the company. Thirdly, the demand for electric vehicles in the future is likely to grow in order to reduce the carbon footprint. This will also impact the used car industry few years down the line. Lastly, more and more players are expected to enter the market and tap into the industry’s potential through digitalization. In the later stage, some players might survive and others might witness mergers and consolidations. I am very optimistic about the industry’s future and expect at least double-digit growth rate in the next few years.

For any queries or feedback, reach out at namit@kenresearch.com

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