Vikram Chopra, Co-founder and CEO - CARS24
In the history of internet companies, the ‘x of y’ business model is all too common. The Amazon of healthcare, the Uber of grocery delivery, Shopify of education and so on. Many of these are legitimate business models. Some fell by the wayside. Now, used car-selling platform Cars24 wants to be the Amazon of cars, betting that you will buy a used car online the same way you buy a mobile phone or book.
The difference though is that Cars24 is making this bet six years after it started. It has been a seller-focused firm so far, where you would go to Cars24 to sell a car. It will sell your car to a dealer, or use its auctioning platform to find a buyer for you, along with insurance, servicing, and a loan, if needed.
Going from a seller- to a buyer-focused platform is harder than it sounds. Cars24 and rival CarDekho have both been seller-focused, which means that a car owner sells his car to the website, and that’s the end of the relationship.
Now Cars24 wants to help you buy a car, something founder and CEO Vikram Chopra terms “an equally big problem”.
Will you buy something for Rs 4-5 lakh without touching it?
“We want to do this without a showroom, which is the default option for buying a car. How can you buy something for Rs 4-5 lakh without touching it? We have to solve this online first, else it won't scale,” he says.
To reassure customers, it has an offer: they can return the car within seven days if they are not happy with it. Barring external damage at the hands of the customer, this warranty will cover everything and the customer will get his money back, Chopra says.
It is however tricky to pay lakhs of rupees for something and then wait for a refund. “The company may be legitimate but just the anxiety of having a lot of money stuck in something you don’t even want anymore can be nerve-wracking and spoil my experience with the company,” said a potential user who requested anonymity.
Plans to sell 3,000 cars this month alone
Chopra proposes that instead of taking the money upfront or via a loan, as Cars24 currently does, it plans to deposit the money in an escrow account. The money can be sent back to the customer if he returns the car, or sent to the company if everything works out. This is still being planned.
Cars24, valued at a billion dollars last October when it raised $200 million led by DST Global, has been piloting this buyer-first initiative for the last six months, and it has sold 5,000 cars.
Chopra says the company will sell 3,000 cars this month alone via this new method, where the Cars24 app and website has a new section called ‘buy used cars’. Cars24 wants to sell 10,000 cars a month to direct buyers by the end of the year.
While refunds are an important element to assuage customers, Chopra is quick to say that so far cars have been returned only about 2 percent of the time.
How will the car be delivered?
“We are trying to bring in the fundamental tenets of e-commerce to car buying. I want my selection to be vast. If you go to a dealer, you can see 15-20 models. I can show you 10,000, and you can decide which one to test-drive. It will be delivered to you to try out,” Chopra says.
But, becoming a buyer-focused platform is also a bit of a logistical nightmare, because Cars24 has to build an entirely new logistics chain.
“If you are buying a car online, your first question is quality. To ensure quality, we are setting up our own factory workshops in seven cities. We are investing more than $10 million just to set them up, led by Delhi. I think we would be the largest facility to refurbish cars,” he says.
So once you sell a car to Cars24, the company will take it to the factory workshop, check it for scratches, check the engine condition, music system, servicing needs, air-conditioning, tyres, suspension, electrical parts and so on.
Cars24 also has trucks delivering vehicles within state borders (given that each state needs a different registration), further supplementing its logistics capability.
Rival CarDekho has also been trying a similar buyer-focused platform, its website shows. CarDekho started this project a month and a half ago, and is selling 20-25 cars a day, much more than the company expected this early on, said a person familiar with the matter.
CarDekho has launched it in Bengaluru, Delhi-NCR, Mumbai and Jaipur, while Cars24 has rolled out this option in 18 cities, mostly metros, with more to follow.
Cost-intensive and Offline-heavy
There is a catch though. Chopra loves comparing Cars24 to Flipkart and Amazon. But, selling a car directly to a buyer, ensuring logistics, quality control, hiring people who have operational expertise, setting up refurbishment factories, and, in many cases, providing loans to them, sounds cost-intensive and offline-heavy, two phrases which are the bane of many internet companies.
Just as how Indian e-commerce pioneer Flipkart is still unprofitable despite billions of dollars in revenue, how this plan will affect the economics of Cars24 remains to be seen. The cost-intensive nature “is a fair point,” Chopra says. But, he adds that this buyer-focused platform is attracting thousands of new customers who are paying a high ticket size, in lakhs, to buy a car. In the long term, it may pay off.
While the core business of selling a car to a dealer has a gross margin of 5 percent, selling it to a customer has a gross margin of 12-13 percent, said an automobile analyst, requesting anonymity as he interacts regularly with both Cars24 and CarDekho. A dealer buys cars in bulk, thus being able to negotiate prices better.
Chopra seems upbeat about the opportunity, particularly because even though close to a billion dollars have been invested in the online car selling/buying space in the last decade, their collective market share in terms of sales is less than 25 percent.
A majority of used cars are still sold offline. Cars24 hopes that by offering both buying and selling, in addition to refurbishing, insurance and other services, it can become the one-stop shop for auto buyers. Whether that will happen will be determined by competitive pressures, availability of investor money, unit economics and macroeconomic sentiment.
“This is where we are closing the deal. We are closing the loop. You can now both buy and sell a used car on our platform, and that’s the ambition. From there we can also do new cars someday. But, this is the first step towards that,” Chopra says.