Online platforms drive Southeast Asia's booming used car market

According to estimates, the used car market in Southeast Asia has grown from more than $40 billion in 2019, with dominant players Indonesia, Thailand and Malaysia contributing those figures, to about $50 billion now for the region.

08, Jul. 2021

A Carro post on the sale of a pre-owned car on Facebook in 2020. Instead of forking out a few hundred thousand dollars for a brand-new luxury sedan, car buyers can get a second-hand in good condition one costing much less. (Photo: Carro)
A Carro post on the sale of a pre-owned car on Facebook in 2020. Instead of forking out a few hundred thousand dollars for a brand-new luxury sedan, car buyers can get a second-hand in good condition one costing much less. (Photo: Carro)

By Celine Chen

SINGAPORE, NNA - The boom in the evolving used-car market in Southeast Asia in the last decade has been accelerated by transaction-based portals and startups in recent years, with some racing toward listings after securing new funding despite the pandemic.

In fact, the COVID-19 crisis and unexpected dearth of auto-chips have prodded the uptrending market, which already has immense potential because of a growing middle class and low-car ownership among a rising population in its emerging economies.

Disruption to car production hit the global auto industry twice last year - first by country lockdowns and border closures, followed by a severe shortage of computer chips which is expected to persist for at least a year or two.

Easing of lockdowns since the latter half of last year has opened the floodgates for pent-up motorists seeking new cars. But delayed launches of new models and smaller inventories are driving up prices as demand outstrips supply.

This has forced budget-conscious car buyers to turn to more affordable pre-owned alternatives, with many searching for their dream car online - reflecting a digitized trend seen across the world.

The flourishing marketplaces also saw many car owners trading in their cars and the strong participation of car dealers seizing profit opportunities.

Noticing that used cars have become a prevalent trend in the past decade, investors have jumped in to support the growth of auto platforms such as buy and sell places like Singapore's Carro.

Consultancy firm Redseer said in a report, "Online models have been around for 5-10 years now. However, the impact in initial years was limited as focus was purely on lead generation – actual transactions still happened offline, and monetization was through selling leads, advertisement, listings etc."

"Transaction based models that have gained in prominence over the past 2-3 years have really turned the game on its head, offering compelling value propositions to both sellers and dealers. C2B models are more prevalent now although players are extending their offerings to C2B2C as well slowly. Monetization potential has increased massively as platforms are charging a percentage commission on the sale, typically," added Redseer.

The COVID-19 pandemic has proven to be a catalyst for Southeast Asia’s $50 billion used-car market, it said, adding that the segment accounted for the majority of over eight million cars sold in the region every year.

While overall investment in Southeast Asia contracted following the onslaught of the pandemic last year, funding interest in this segment seemed to have rekindled as people rushed to procure a used car, with some saying it would be a safer alternative to public transport.

Last month (June), Carro achieved unicorn status after raising about $354 million (S$477 million) in Series C funding led by Japan's SoftBank Vision Fund 2.

Apart from enhancing its presence in Thailand, Malaysia, and Singapore – markets that saw significant growth in the past year, Carro is boosting its portfolio of financial services by expanding beyond in-house loan financing and accelerating AI capabilities.

Supported by an app, the Carro platform offers services like expert valuation, pre-approved financing, AI-driven usage-based insurance and search for car repair workshops.

Backing Carro's expansion to new markets, Greg Moon, managing partner of SoftBank Investment Advisers, said, “Carro is transforming the automotive industry in Southeast Asia by providing a seamless buying and selling experience for both consumers and car dealers. Powered by AI, Carro’s technology platform provides consumers with full-stack services and transparency throughout the car ownership process."

Like Carro, Singapore classifieds startup Carousell is also planning exit options such as an IPO after seeing explosive growth in recent years.

Having raised $80 million from an investment by South Korea's Naver in September last year, which brought its valuation to about $900 million, the group has operations throughout Southeast Asia, Hong Kong and Taiwan.

In April, it launched the Carousell Auto Group to boost the financial services of its auto classifieds platforms, namely, Mudah Auto in Malaysia, Cho Tot Xe in Vietnam, Carousell Autos in Philippines, Hong Kong and Singapore, together with innovative transactional platforms OneShift and Revo Financial.

The group believes that middle-class Southeast Asian consumers will more than double from 135 million now to 334 million by 2030.

Malaysia's Carsome, which also has a presence in several countries in the region, is gunning for a US listing next year after seeing how the pandemic has driven up sales significantly.

The startup, which is seeking millions in fresh capital, estimated the used car market to be worth at least $40 billion in 2019 based on the sales of the three top performers - Indonesia, Thailand and Malaysia. Vietnam and Singapore have a higher share of new cars sold.

Scanning these regional car platforms, one could tell that car hunters are spoiled for choice today, with a huge variety of second-hand but still desirable models with technological features.

Spurred by the tech revolution and changing consumer expectations, car platforms have become attractive and savvy, offering more reliable information on car condition, pricing algorithms, user-friendly functions and engagement supported by artificial intelligence and virtual showrooms.

"Consumers are unwilling to invest hugely in newer commodities and opting to purchase used-products. As a result, we see the used car industry on the rise," said Mordor Intelligence, adding that car platforms have proven to be widely safe, accessible, and offer reasonable prices.

The research company noted that sales of used cars in Southeast Asia are now 1.3 times more than new vehicles. Expecting the figures to double over the next 10 years, it attributed the buoyant growth to rising population and economic performance.

This makes Southeast Asia the fastest growing market for used cars as well as an attractive one for investors, said Mordor Intelligence.

It noted automotive e-commerce has grown at a staggering rate in Thailand and Indonesian markets, with almost 100 percent of customers beginning their used car shopping experience online.

The big shift has pushed car dealers to provide faster digital service and given them more accessible options to advertise their listings.

Today, more than 70 percent of used car dealers in Southeast Asia use the internet, said the research company. Catching up, over 60 percent of car dealers in the Philippines are now using the internet, with most of them advertising on online platforms and social media, it added.

Millennials today are also more likely to buy a used car, sticking to a tight budget for a decent car rather than going for the more expensive brands.

Mordor Intelligence said, "Millennials are much tech-savvy, resulting in used-car sellers to focus on strengthening their online infrastructure. As a result, we see the online marketplace adapting to proprietary pricing algorithms to inspect and evaluate vehicles. This has also helped companies improve their used-car trade and transactional framework."

Japanese car companies have contributed to the growth of the market for second-hand autos in Southeast Asia.

As sales of their new cars shot up significantly more than 10 years ago in countries such as Indonesia, the inventory for used cars has grown enormously in 2019 with a large number of motorists selling their older vehicles to other developing nations at affordable prices.

This has seen Indonesia becoming the largest exporter of used cars in the region, said Mordor Intelligence.

Likewise with other automotive markets, Thailand and the Philippines have witnessed a sharp decline in new car sales in recent years due to an increasingly middle-class population, who are budget-conscious though affluent, and weaker buying power for high-value goods as a result of economic fallout from the COVID-19 pandemic and country lockdowns.

However, the contagion-driven recession with an uncertain outlook became an opportunity for used car dealers to target prospective buyers with a limited budget. Historically, they had shown to perform even better during an economic downturn.

In 2020, total auto sales in Thailand plunged 27 percent to about 760,000 units.

But used vehicles offered in digital marketplaces offered a “glimmer of hope” for the industry as prices kept increasing last year due to demand, said Thai car platform Chobrod.

Following a strong performance in summer 2020, dealers have been optimistic of an upsurge in the used car market in 2021, especially through online platforms, it said.

"More and more used auto providers are competing with the move to digital, which is a major behavioural shift for the used car market in Thailand," said Chobrod in a blog post this year.

In fact, Chobrod enhanced its website extensively after merging with rival platform Unseencar earlier this year. The merger created a huge "supermarket" listing a nationwide network of car dealers apart from boasting user-friendly AI features that enable quick search results within seconds and comparison of reviews.

Car sales per capita in Southeast Asia are still low, which have helped propel the successful rise of ride-hailing companies such as Gojek and Grab, while urban congestion with a growing population has sparked government spending on transport infrastructure, such as roads and rail projects.

Mordor Intelligence said although stagnant automobile production in the region in recent years could hinder the used car market, it will still remain successful because of the allure of "compact and budget-friendly options" to second-hand buyers.