The used vehicle segment globally has drawn flak for trust issues and less-than-optimal business practices. Blockchain integration, however, holds promise in offering solutions for all customer pain points currently faced. It is only a matter of time before blockchain makes used cars a standard product with a predictable customer experience.
A little over two decades ago, in 1998-99, people were beginning to learn of a term called the ‘internet’. Within a few years, its adoption became commonplace. Similarly, blockchain is quickly becoming a part of everyday speech. News channels and media outlets seem to use terms like blockchain, crypto, and decentralized with increasing frequency. Although most associate blockchain with cryptocurrencies like bitcoin, its use cases are far more expansive. Market research firm Gartner highlights that blockchain’s business value-add will grow to $176 billion by 2025 and $3.1 trillion by 2030.
Used vehicle sector
A critical area that blockchain addresses is trust. The ‘cost of trust’ is very high across most business, government, or individual transactions and operations. Usually, a central body such as a court of law is considered an authority in which trust can be reposed. It is a centralized seat of power. But by using blockchain, the authority that validates any particular transaction or operation is decentralized — meaning it can now take place over a peer-to-peer network. More importantly, blockchain removes the element of human bias. Its trust quotient is, therefore, high.
The trust deficit is the core problem of used cars sellers and buyers. A definitive answer has not been found to questions such as, “what is the right price for my car? Am I selling my car to a safe buyer? Am I buying a lemon or am I overpaying?”
Across the world, the used car trade has acquired a reputation for following less-than-optimal sales practices. It could be in the form of selling a defective car or selling accidental cars. Tampered odometer readings and inaccurate service history records are common woes for used vehicle shoppers. In addition, it is often difficult to determine what is the fair residual value of the used vehicle.
To address odometer tampering, India’s Ministry of Transportation had mandated the use of digital odometers in 2003. Dishonest used vehicle sellers have been all too quick in finding workarounds.
Even in the US, odometer tampering is a common problem. In 2017 itself, a Forbes estimate pegged as much as USD1 billion in losses for used-vehicle purchasers annually stemming from inflation of car values. Odometer tampering is even more rampant in Europe, where associated losses to preowned car buyers were a staggering USD10.6 billion in 2018 alone. The pressing question then is, “how can this trust deficit be restored?”
In context to determining residual values, a US-based Kelley Blue Book is recognized by both consumers and manufacturers as an authority determining residual values. The organization provides a range of a vehicle’s value depending on its age and kilometers run. However, vehicle age and kilometers run are not always accurate measures of value. A year-old vehicle that has been used in tougher terrain or difficult driving conditions, is likely to be in worse condition than a similar vehicle that is older but was gently driven and well looked after.
Blockchain use cases in the used car business
Blockchain integration can offer lasting solutions on all three fronts — i) making sure accurate mileage is recorded, ii) service or collision histories are fully disclosed and, iii) residual values are fair. With blockchain gradually making inroads in the auto sector, there is relief in sight for frustrated used car shoppers or repair seekers.
One working example is the joint venture between Mercedes Benz and Chinese automaker BAIC called Beijing Mercedes Benz Sales Service. A blockchain solutions provider called Platon will allow the joint venture entity to store data and determine used car prices. The Chinese used car market is also plagued by a trust deficit — a key reason why a large share of its car buyers purchases a new car instead. In comparison to a similar-sized auto market such as the US, China’s used car segment is only a fraction. Earlier in January 2021, however, the country outlined targets to double its used car market size by 2025. Plans are afoot to build a USD306 billion used car market in this time frame.
To address the problem of odometer tampering, Volkswagen too has turned to the blockchain. It has enlisted the services of a Lithuanian blockchain firm called carVertical that will enable a decentralized car checking process in its preowned division. carVertical, meanwhile, has even garnered the European Union’s support.
Similar customer grievances in auto repairs
In the auto repair segment, too, the trust runs low. Auto repairs are termed a ‘grudge expense’. Car owners cannot ‘see or assess’ what they received in lieu of the money spent on the car repair, and also can not ascertain the quality of repairs and spare parts.
For example, scheduled maintenance for a vehicle requires an oil and filter change. Both items are added or fitted in hard-to-access places in the engine compartment. For the uninitiated, it could well mean that the dealership, or independent repair workshop, has reneged on the agreed repairs or replacements. Besides, it is also challenging and at times impossible to determine the originality of the replacement parts used.
Blockchain is the future!
The used car industry has inefficiencies and a lack of trust across its value chain. These are also facets that discourage prospective buyers from used vehicle purchases. Governments are also taking note of these issues. Certain state and provincial governments in the US and Canada, for example, mandated both new and used vehicle salespersons to obtain certification before selling vehicles. The course curriculum outlines ethical standards that must be maintained. A key highlight in the course is caveat emptor — meaning ‘let the buyer beware.
However, human biases are difficult to eliminate. Despite well-meaning regulations in place, workarounds always seem to be found. Ethics and principles are often shown the door when monetary gains present themselves. Blockchain, meanwhile, promises to offer solutions that can eliminate both inefficiencies and trust deficits.
Blockchain will revolutionize the used cars business and position it for ‘all-time highs’. That said, it is imperative that governments build regulatory frameworks that foster the growth of a blockchain ecosystem in a holistic manner.
(Except for the headline, this story has not been edited by The Technology Express staff and is published from a syndicated feed)
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