Going Full Stack and not looking back

While the C2D segment has undoubted appeal, the unit economics has yet to be figured out. Cars24 may be the largest player in this category, but it’s unit economics aren’t great. To give a rough estimate, Cars 24 would earn about Rs 15,000 ($210) on a car purchase of Rs 3 lakh ($4,200). This goes towards several expenses—managing the store, salaries, warehousing, marketing, etc. Given the fact that Cars24 is still setting up stores, it’s operating expenses are higher, leading to losses. Experts feel that as these marketplaces scale-up, profit will soon follow.

“As more and more volume comes in, it will start making sense. There is enough opportunity both on the demand as well as the supply side. It is only a question of trust getting built in the system and more people moving online,” Says Nilesh Kothari, co-founder, and managing partner at venture debt financing firm Trifecta Capital. Trifecta is an investor in CarDekho.

Well-aware about the economics

CarDekho is aware of the poor unit economics but is willing to wait. “Structurally, the market will move towards these models (C2D). It is convenient for dealers to buy through these platforms and for customers to sell through them,” says CarDekho’s Umang Kumar.

The C2D is part of CarDekho’s full-stack strategy, wherein it will ensure that it has monetization at every stage. Aside from the 4-5% that it will make on the auction of each car, it will also get into a fintech play. The auto marketplace will essentially offer working capital loans to auto dealers looking to buy inventory. An expert from a company in the same space said that there is scope for decent margins here as CarDekho can secure loans from NBFCs at interest rates as low as 13-14% and offer it at markedly higher interest rates of 22-24%.

The chain does not stop there. Having an end-to-end model means that the car bought by the dealer may land up on CarDekho’s classifieds platform, which the company has steadily built over the years. Of course, the dealer could choose to list on rival platforms like Olx, which has a large horizontal classifieds business. However, if it is posted on CarDekho’s classifieds, the platform could earn more revenue by facilitating finance and insurance of the car. In this entire play, experts believe that CarDekho could end up making anywhere between 6-7% of the used car cost across the entire chain

Finance fantasy

CarDekho’s rivals though will be hoping to curb its rise. The company acknowledges that it will face significant competition. With CarDekho’s incursion on Cars24’s C2D turf, Cars24 will look to strike back.

Likely by going after CarDekho’s stronghold—classifieds, and more specifically the finance and insurance space. Although, it is currently only in Delhi NCR on the “buy” side, sources say that Cars24 is ramping up its presence and fundraising may be underway.

The finance and insurance space is precious to CarDekho. After all, this is where it has built its value proposition over the past few years. Realizing that it faced stiff competition from Olx from a pure classifieds perspective, it went about creating a niche for itself, offering things that Olx did not. Thus came warranties, inspection reports, certification, finance, and insurance.

CarDekho’s insurance business is growing at 20% month-on-month. In December 2018 alone, it sold 12,000 policies—10,000 more than it did the December before. Its financing business is also growing at a steady clip— with Rs 60 crore ($8.4 million) worth of loan disbursals in October 2018.

CarDekho’s Kumar feels that there is tremendous opportunity in finance, with the penetration being just 15% in used cars. He believes this could go as high as 40% in the next 5-6 years. As proof of the untapped potential in the segment, he gives the example of listed companies like Shriram City Union Finance in the vehicle financing space which have grown to become billion-dollar companies.


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