In Momentum Works’s Used Car Marketplaces Southeast Asia report released earlier this year, we mentioned that the used car sales in Southeast Asia was relatively resilient (and stable) during the Covid-19 pandemic.
This resilience to market shocks can be traced back much further historically to the Global Financial Crisis in 2008 or the Asian Financial Crisis in 1997. Unlike for the new cars market, wherein dealerships resort to liquidating their inventory, the price level for used cars remains stable. Some excess demand is also attracted from now cash strapped customers who previously would have bought new.
In the current year where black swans swim in droves, the US used car platform Carvana has given some indicators through its share price:
Even if it missed the sales estimates, the accelerated growth as well as the breakthrough in car sourcing sent the share prices soaring.
So what is happening (or has happened) to the three major used car players in Southeast Asia, which we analysed in detail in our report?
All three were sufficiently well-funded prior to the pandemic:
While the sector remains resilient, it is interesting to see how the different strategies play out:
BeliMobilGue (OLX Autos Indonesia)
Indonesia-focused BeliMobilGue (BMG) rode into the pandemic with a seizable war chest of $30M stemming from the Series A Investment by Naspers & OLX-backed Frontier Car Group (FCG).
A bit of background, FCG started in Germany and has built a portfolio of companies in emerging markets. After a US$400 million investment round last year, OLX Group effectively became the controlling shareholder. OLX Group itself is controlled by Prosus, the listed digital arm of Naspers.
In Indonesia, BMG has taken an aggressive approach in expansion, opening hundreds of centres, and also prolific in advertising. In a way, this is similar to the approach many Rocket Internet companies took in the past, and what Delivery Hero (both Germany-headquartered companies) is doing now in the region.
Amid the pandemic, BMG went through a rebranding exercise, and became OLX Autos Indonesia. This rebranding was probably planned since long, and it shows the (grand)parent group’s effort to transition from pure online listing to transaction focused business models.
The company ramped up hiring aggressively in February, and almost stopped for a few months when COVID-19 first hit:
The Singapore-based company adopts what we term “diversification strategy” in the report, with constant pursuit of new opportunities:
The company decided to go into physical showrooms in Indonesia. The result is “Carro Automall”, a 5000 square feet (456 square metres) retail facility:
It is nice that customers are able to actually see, feel, and test the used cars being sold. However, the location means a trip there for Jakarta residents is probably a serious undertaking:
And it opened in July, when Indonesia experienced a surge in confirmed covid-19 cases:
The team is still growing:
Dealstreetasia reported the company has raised a round of US$11 million led by Mitsubishi (smaller than previous rounds – and of which US$4 million were from Mitsubishi), with a Mitsubishi executive joined as chief strategy officer.
Interesting, Carsome, a Malaysia-headquartered company, is in the news more often than the others during the pandemic. Eric Cheng, its CEO has spoken of a V-shaped recovery, with the sales numbers exceeding pre-covid levels by the end of the second quarter.
The increased coverage seems to speak of confidence, as the company was much quieter compared to the other two in the past.
Many people have compared Carsome to Carro, because both companies (unlike BMG) are regional, with the same prefix in their name. In reality, the focus of both companies are very different:
The strategy above probably explains the quietness of the company in the past. It, however, recently also went into the B2C segment, with a new brand identity. This week it launched the first experience centre in Malaysia:
It seems that they are confident that their quality/pricing data and service standards, collected over the years of tens of thousands of inspections, are now put in use for the B2C segment, completing the full lifecycle of used cars.
In a press interview, Cheng also mentioned the increased focus on tech during the lull period of the first few weeks of the locked downs. This seems to be validated by the company’s more than 50% increase in engineering department:
As we mentioned in our report, both the growth potential of used car market in Southeast Asia, as well as the grow rates, are promising:
Covid-19 pandemic has accelerated digitisation of many industries in Southeast Asia, including used cars. This trend is irreversible. Challenges abound though – from the region’s diversity to the abundance of operational friction in emerging markets.
The three companies, which each adopted a different strategy, are in the race to capture this market:
We believe that while the growth is accelerated, companies should not forget that it is a long game – whoever focused on solid steps, unlocking each potential stage along the way, will win the crown jewel in the end.