“A few years back, we realised that there wasn’t a centralised nor systemised platform within the used car market,” said Eric Cheng, co-founder & Group CEO of online used car platform Carsome.
“Instead, it was fragmented and marred by distrust towards used car dealers due to the lack of transparency.”
Truth be told, the used car industry has seen immense challenges in establishing integrity, credibility and authenticity. For a long time, the public perception of used-car dealerships was not very favourable.
In fact, a study conducted by the European Commission revealed that the second-hand cars market has had the lowest overall score among the goods markets — this was also the case in 2010 and 2011 in the European Union.
The market is affected by asymmetric information, which explains its particularly low scores on trust. It also registered the worst performance of all goods markets on problems experienced by consumers and on comparability.
Establishing A Transparent Buying-Selling Process
This prompted Eric to co-find Carsome, along with partner and now Chief Business Development Officer, Teoh Jiun Ee, setting up operations in Malaysia in 2015.
Sharing more about himself, Eric said that he was an accounting student, but decided to terminate his studies during his second year as he always had an entrepreneurial streak in him.
He started an advertising network and creative agency, which he eventually sold off after nine months.
He then leveraged on his eight years of experience in digital advertising which strengthened his understanding of market demands to kickstart Carsome.
I noticed the pain points of the used car industry — the lack of transparency, the complicated and fussy process et cetera, and thought, ‘why not come up with something to fix it?’
– Eric Cheng, co-founder & Group CEO of Carsome
Carsome started off as a business solution in helping people with car purchasing. Eventually, the business switched to focusing on helping people sell cars.
“We take care of the entire car-selling process, from car inspection to ownership transfer and fast payment, leaving customers with an easy and hassle-free process,” added the 35-year-old in an interview with Vulcan Post.
The C2B platform connects sellers (consumers) with buyers (used car dealers) and it promises used car owners that they can sell their used cars within just three days.
It takes only two minutes for users to submit their details, after which they will be contacted to schedule their car for bidding. They will then receive bids through their dealer network in the next three hours.
After which, they can send their car for inspection — another 45 minutes — to the highest bidder. It will take another hour to negotiate on the final offer and the transaction can be sealed almost immediately.
All in all, this entire process can be completed within, as fast as, six hours.
By 2016, they had launched Carsome Singapore and passed the mark of 1,000 cars transacted annually.
While there are Carsome inspection centres at different locations in Malaysia, car inspection in Singapore is carried out at any place of convenience of the highest bidder. This means that you can choose to deal anywhere.
They were doing so well in Malaysia and Singapore that they expanded to Indonesia and Thailand in 2017.
In 2018, Carsome passed the mark of 10,000 cars transacted annually and was awarded the ‘Startup of the Year’ by the Malaysian Rice Bowl Startup Awards.
According to Carsome, they are now the region’s biggest used car trading platform.
Changing Customers’ Perception Towards SEA’s Used Car Market
Though they had bootstrapped the business in their early days and grew the team to its current size of 800 across Southeast Asia (SEA), their biggest challenge was convincing the market that [their] platform could be trusted, said Eric.
Getting sellers and dealers to use and trust the then-new product in the market was not an easy task, especially since they were the first movers.
It took a lot of time to build the trust that our inspection standards and reports were up to standard, and reliable enough to make business decisions for dealers.
– Eric Cheng, co-founder & Group CEO of Carsome
In fact, in a September 2018 online study carried out by market research company Vase.ai, only 21 per cent of consumers in Klang Valley, Malaysia were aware of the Carsome brand, while only nine per cent were ready to try out their services.
Carsome recognised that one of the main barriers was the trust factor of used car dealerships.
Furthermore, consumers were unaware of Carsome’s services and their benefits and how Carsome differs from other car-selling services such as Carlist and Mudah.
There were also consumer problems and concerns that Carsome needed to be aware of and understand when consumers are selling or trading-in their vehicles.
With the results from the research, Carsome fine-tuned their ads with relevant messaging that focus more on consumers’ concerns, aborted certain ads and invested more in others.
As a result, they saw significant improvements and transaction numbers as a group grew tremendously year-on-year (YOY), while the group GMV (Gross Merchandise Value) also observed a significant YoY growth.
“Consumers and dealers are becoming more receptive to used car trading platforms like us, so we believe this will continue on as a trend and subsequently, a norm in Southeast Asia,” said Eric.
Approximately 40,000 cars are transacted on the Carsome app annually — this equates to the transaction of around one every 10 minutes.
US$ 85 Million In Funding Up To Date
In December 2019, Carsome raised a Series C funding round of US$ 50 million (S$ 68 million), their largest amount to date.
Investors include MUFG Innovation Partners, Convergence Ventures, Ondine Capital, Endeavour Catalyst, Gobi Partners and Daiwa Pl Partners.
They will be pumping the US$ 50 million raised from strategic investors into its SEA markets to significantly expand their presence.
They are also looking at expanding their product offerings and existing services including insurance, aggregation of financial products and a significantly different experience of buying used cars.
Eric also said that he is looking to solidify Carsome’s position as the number-one player in the region, while also expanding beyond Southeast Asia.
Last year they had two funding rounds — a Series B1 round of US$ 19 million and a Series B2 of US$ 8 million.
Over the course of six funding rounds from 2015 to 2020, they have raised US$ 85 million and are setting their sights on growing their presence in the existing markets.
SEA’s Used Car Market Is Worth More Than US$ 40 Billion
According to a report by venture capitalist Momentum Works, 6 million used cars were sold in 2019 and the industry is dominated by players including Belimobilgue, Cardekho, Carmudi, Carro, Carsome, iCarAsia, OLX and SGCarmart.
Amongst the Southeast Asian market, Indonesia, Thailand and Malaysia account for the most used car transactions.
Even with our transaction value of US$ 600 million to date, we have only penetrated one per cent of Southeast Asia’s used car market.
– Eric Cheng, co-founder & Group CEO of Carsome
The used car industry is an underserved market in Southeast Asia with high growth potential.
Compared to developed countries, emerging countries from Southeast Asia offer better potential for car ownership. Indonesia, Thailand and Malaysia are good examples of consistent high historic growth of used car sales and future potential because of lower bases they are at now.
According to the research gathered by Momentum Works, Malaysia number of units sold per capita is the highest in the region, although in absolute numbers it ranks behind Indonesia and Thailand. The highly liquid market offers Carsome a good home ground.
In Malaysia, Indonesia and Thailand, the used car industry has a market size of more than U$ 40 billion in 2019 and are the top three biggest markets in Southeast Asia. Naturally, our business focus is to go to where opportunities lie and consolidate the market as much as we can.
For 2020, we will focus on horizontal and vertical growth where we currently operate in — Malaysia, Indonesia, Thailand and Singapore. We will be eyeing further expansion into more cities within these countries to grow our network and help more people sell their cars.
– Eric Cheng, co-founder & Group CEO of Carsome
Singapore comes in at 6th, behind the Philippines and Vietnam. Singapore is lucrative in average car transaction value, but limited in market size. The growth is further curtailed by the government’s zero car growth policy.
Used Car Market Unaffected By Covid-19
Typically less volatile compared to new car sales, used car sales are expected to remain stable and less impacted by the Covid-19 pandemic.
Carsome has almost fully recovered to the record high transaction volumes pre-lockdown: used car transactions in June 2020 were 300 per cent more than May 2020, and up over 70 per cent as compared to June 2019.
The Carsome Consumer Survey conducted in April 2020 shows an expected 76 per cent decrease in the usage of ride-sharing services among consumers as they felt safer using their own vehicles.
Consumers continue to shun public transport and ride-sharing services in view of the pandemic situation, turning to private car ownership.
According to the survey, 34 per cent of Malaysians, 43 per cent of Indonesians and 25 per cent of Thais plan to sell their cars within the next 12 months, with most citing the reasons being wanting to get rid of their old cars or have more cash on hand.
Moreover, the introduction of new tax tariffs in Malaysia, Indonesia and Thailand have also contributed to strong consumer demands in new and used cars.
This has led to higher inspections uptick across all Carsome centres, with a notable rise in car disposals.
Carsome also saw more robust demand from its used car dealers in restocking their inventory to cater to the pent-up demand.
As a result, in 2020, they partnered CIMB Bank to launch a digital financing solution for dealers and PT Bank Danamon Indonesia for cash management solutions.
On the supply chain capability side, they are working towards obtaining accreditation in their car inspection standards.
How SEA’s Used Car Market Would Look Like Beyond 2020
The performance of the used car market is generally influenced by that of the new car market, and is an indication of demand for private cars.
From the recent events, we find that the used car market generally does particularly well in the face of recession, said Eric.
This is also observed across the industry, with the recovery trend for cars below RM30,000 (S$ 9,800) seeing a higher rebound since the Movement Control Order (MCO) in Malaysia.
Car ownership in SEA is increasing, which then transforms to much more room for growth in the used car industry.
In order to make a difference in this market and be a true disruptor, the key is always trust — trust from the mass market that they are able to sell their cars at a fair rate, with convenience and speed and trust from the dealers that the source of used cars is of good quality and is exactly what that is represented by the pictures provided in the inspection report.
“We strongly believe that Carsome has addressed all the key points in delivering a truly game-changing product to revolutionise the used car market,” affirmed Eric.
Featured Image Credit: Carsome
