Car traders in funding batch milestone
Concerns over profit pitfalls for major used vehicle platforms, despite fundraising and development efforts
After a period of silence, major online domestic used car trading platforms competitively announced new rounds of fundraising in mid- June, indicating that more investors are considering the used car industry an ocean of opportunity.
China’s leading car trading platforms Guazi and Mychebao both announced on June 15 that they will release fundraising batches. Guazi, a C2C used car trading platform, said it has been granted ‘ B- round’ funding worth $ 400 million. Mychebao, or Chezhibao in Chinese, stated that it has raised 500 million yuan ($ 73 million) from Regent Capital Ltd, the Silk Road Fund and Shuimu Investment Group, domestic news portal 21jingji. com reported on June 20.
In the wake of the two companies’ announcements, Uxin, another used car trading platform, held a press conference in Beijing on June 15 to launch a nationwide direct purchasing business and to roll out a new brand building plan.
All three companies made their announcements around June 15, indicating current trends and a promising future for the car trading sector, said an industry insider.
Promising businesses
In 2016, the number of transacted used cars surpassed 10 million for the first time in China, reaching 10.4 million, an increase of 10.33 percent from the previous year, data from the China Automobile Dealers Association ( CADA) showed in February.
It is forecast that the number will reach 12 million in 2017, with a growth rate of 20 percent in comparison with the previous year, domestic news website sohu. com reported on June 19, citing Luo Lei, deputy secretary- general of the CADA.
Investors’ strong interest in the used car sector is mainly due to automobile circulation changes as well as new retail concepts, an unnamed investor told 21jingji. com.
Used car platforms not only sell used cars but also help consumers replace used cars with new ones, said the investor.
In addition to used cars, investors’ business ventures have expanded to the entire car dealing market which has involved new consumption and distribution modes, according to the report.
The ‘ New Retail’ model, a concept proposed by Alibaba’s founder and executive chairman Jack Ma Yun, means leveraging advanced technologies, including big data and artificial intelligence, to transform product manufacturing, distribution and services to meet the demands of consumer upgrade. It also includes deep integration of online services, offline experience and modern logistics.
“I feel no surprise for Guazi’s funding … As soon as [ an online used car trading platform] establishes a national logistics network, it can provide more choices for consumers,” said Dai Kun, CEO of Uxin.
Uxin will invest 2 billion yuan to establish its own logistics system and will launch national direct purchasing services to forge a new retail mode, according to Dai.
By 2020, the company is expected to set up 2,000 offline stores, several logistics routes that could link more than 100 cities, 20 central warehouses and 100 transfer warehouses to provide doorstep delivery services within five days.
Guazi has been preparing to enter a new phase of development, which aims to enrich its car- related products and offer excellent services to consumers, Yang Haoyong, CEO of Guazi, said during a press conference on June 15. The latest round of funding will mainly be used to lay out new business and upgrade its products and services, among other aspects, he said.
According to a report released by strategy consultancy Roland Berger last year, the automobile finance penetration in the US was 80 percent, while in China, it increased from 20 percent in 2014 to 35 percent in 2015, signifying big potential for the industry in the world’s second- largest economy.
Profitability issue
With the used car market evidently set for a prosperous future, investors are now heavily investing in used car trading platforms. Since the beginning of this year, major platforms, including Uxin, Guazi and Mychebao, have raised combined funds totaling 9 billion yuan, according to sohu. com.
In stark contrast to these raised funds is major used car trading platforms’ low penetration and profits.
Online used car traders are not major channels selling used cars, 21jingji. com said, noting that their penetration was only 13.9 percent in 2016.
Additionally, though most platforms have announced they will soon make profits, they nevertheless see no significant profits at present.
For example, Guazi’s CEO Yang Haoyong announced the company will make profits in the fourth quarter of the year. However, the platform’s current revenue mainly comes from transaction fees and financial services.
What is noticeable is that Guazi raised commissions from 3 percent to 4 percent, with the bottom commission for a single car raised to 3,500 yuan from the previous price of 1,600 yuan in May, which is speculated to be connected with the company’s profit goal, 21jingji. com reported.