A new venture focused on online sales of used cars is this year as investors are betting heavily that the last major category of consumer spending to escape the e-commerce turmoil will finally be digitized. By now, it has closed a deal that raises about $ 6 billion.
Emerging companies and decades ago car trading groups that rarely existed before the pandemic needed online marketplaces, consumer brands, and expensive logistics infrastructure to open up a valuable global used car market. Competing to build a structure. Almost $ 1tn 1 year.
“The automotive industry is lagging behind the online shift compared to almost every other retailer, but is now catching up,” said Alex Chesterman, founder and CEO of UK-based Cazoo. Says. This year it will be from a penny to nearly $ 1 billion.
Chesterman’s Digital Car Retailer $ 8 billion transaction This summer, we partnered with a US special-purpose acquisition company to generate approximately $ 1 billion in revenue. Cazoo’s biggest UK competitor, Cinch, raised £ 1 billion ($ 1.4 billion) in new capital in May.
Cinch and Kazoo are just two of the biggest examples of how much fuel is being poured into used car sites around the world, from India to Mexico.
“It feels like the last big holdout in the transition to a digital economy,” said Tom Beathes, co-founder of another British automotive start-up, Motorway. “It’s time for the industry to collapse and become more efficient. It’s been bad for consumers for decades.”
European, Latin American and Asian companies are trying to recreate the success of Arizona-based pioneer Carvana, which was founded in 2012 and is now worth more than $ 50 billion.
Carvana’s share has more than doubled in the last 12 months after an annual revenue increase of 42% in 2020. Still, the fragmented US used car market share is estimated to be less than 1%, and bulls see huge growth. Potential.
Consumers have been investigating their next car purchase online for years. However, transactions usually complete offline, even when arranged through a website such as Auto Trader. The pandemic blockade persuaded more car buyers to go online for the first time, creating fertile conditions for dealers to shift their focus from the vestibule to the web.
“There has been a big change in the industry’s view of online business,” Reese said after the highway raised $ 68 million last month to build an online marketplace for dealers to bid on private cars. “In the last 12 months, every car dealer has had to be an online car dealer.”
At the same time, the chip shortage caused by the Covid-19 manufacturing turmoil has spread throughout the global automotive supply chain.Restricted production of new cars Pushed up the price In the used market, competition for used cars has intensified, Rising inflation All developed countries.
Used cars are already a £ 480 billion ($ 660 billion) market across the UK and Europe in 2019, the mainstay of e-commerce such as clothing and home appliances, according to data quoted by Cazoo in an investor presentation. Much larger than the product.
However, when it entered the pandemic, less than 1% of all used car sales went online. In contrast, digital channels account for one-third of clothing sales and half of electronics retail.
“Three years ago, getting £ 20,000 to buy e-commerce was a big call,” said Will Turner, a partner at technology investor Draper Esprit and an investor at Cazoo.
To make car shoppers more comfortable buying online, digital platforms such as Cazoo, Cinch and Autohero in Europe have introduced Amazon-like features such as 7-day returns and delivery within a few days. did.
Chesterman predicts that within five to seven years, 30% of the used car market will move online. But unleashing this multi-billion dollar opportunity requires huge investments in inventory acquisition, refurbishment centers and delivery infrastructure construction, and marketing.
Rebecca Hunt, a partner at Octopus Ventures, an investor in Cazoo, said: “You can’t escape from it.”
For example, the cost of storing and shipping inventory and processing returns is much higher than other categories of online retail due to the size and price of the assets.
“It’s clear that there is huge demand, but no one could offer it on a large scale,” Hunt said.
It is currently changing rapidly as investors push the accelerator through a series of private financing, initial public offerings, and blank check corporate transactions.
Germany’s Auto1, which owns Autohero, raised $ 1.2 billion in primary funding from an IPO in February, valued at around € 8 billion.Another new list I saw last month Aramis Operating used car markets in France, Spain, Belgium and the United Kingdom — has raised approximately $ 300 million in new funding.
In private trading, Kavak of Mexico raised $ 485 million in April at a valuation of $ 4 billion, and SoftBank led a $ 360 million investment in Singapore-based Carlo in June. In India, Spinney has raised $ 165 million so far this year from investors, including Tiger Global.
Private Equity Farm Partner Thibaut Large said: TDR Capital, Cinch’s major shareholder.
While UK rival Cazoo is only three years old, Cinch is part of the 75-year-old Constellation Automotive Group, the parent company of webuyanycar.com and the UK’s largest car auction business, BCA. TDR BCA private In the middle of 2019.
Last week, TDR and some of the same investors who backed Cinch invested € 400 million in CarNext, which operates on the European continent, to take on the autohero.
“Each of these markets has potential demand,” says Large. “Consumers are dissatisfied with all the traditional ways of buying a used car, so they jump at the opportunity to buy it. [online].. “