Online Car Marketplaces Drive Profits for MENA Startups

With almost 2,000 cars sold daily and nearly 750,000 vehicles sold on a yearly basis, the Egyptian used car market, representing a Gross Merchandise Value (GMV) of about $10 billion, is a very large but fragmented one.

According to Omar El Defrawy, co-founder and CEO at Cairo-based used car online retailer Sylndr, the level of fragmentation is extremely apparent in the fact that none of the estimated 18,000 dealers in the market even has a 0.5% market share, posing significant challenges to businesses in terms of low margins and expensive logistics.

Market fragmentation aside, he said the lack of trust between buyers and sellers — a common trend in emerging markets like Nigeria, Kenya, Mexico, Brazil and India — remains the biggest obstacle to industry growth.

“There is no proper [automotive] marketplace for buyers and sellers to meet, and there is no incentive for dealers to be transparent about their product. That’s the core problem,” El Defrawy told PYMNTS in an interview.

As a result, most people resort to classified ads, but the hassle of calling the seller, arranging a meeting and finding a mechanic to go and inspect the vehicle can be an extremely frustrating, time-consuming process altogether.

In a country like Egypt, where a $15,000 to $20,000 vehicle is a huge investment for individuals who earn lower than that amount in yearly wages, El Defrawy said these challenges combined make the vehicle purchasing decision very difficult.

“You shouldn’t be in a place where you’re not comfortable and secure about making the second biggest investment in your life [after a mortgage],” he added.

Seamless Buying and Selling Process

It’s that gap that Sylndr, which recently raised $12.6 million in a pre-seed funding round, is looking to fill in the market today. The company provides customers with high-quality, refurbished cars that have passed more than 150 points of in-house inspection, paired with a warranty and a seven-day money back guarantee.

Related news: Used Car Marketplace Sylndr Raises $12.6M

For sellers, all they need to do is to submit their vehicle particulars on the retailer’s website and schedule a meeting with an expert to get the car fully inspected, after which they will receive a quote. That end-to-end process can be completed in as little as four hours, El Defrawy noted, making it a quick and seamless process for clients.

The Cairo-based retailer also has plans to partner with financial institutions to offer buyers flexible financing options on either a short-term or long-term credit basis to meet a key need in the local market.

“In Egypt, there is only 3-5% in estimated financing for used cars, and that is extremely low compared to Europe and the U.S., where it’s 80-90%,” he explained. “So, by making it easier for people to source good, affordable cars, we will be giving users a good value proposition.”

Affordability and Profitability

Elsewhere, El Defrawy touched on the price decline in the global used car market and tight supply chain issues, including a shortage of chips and other components that continue to hamper industry growth. With the ongoing geopolitical issues and expected recession, further hard times are expected down the road.

“Given the current global trends, we are being extra cautious and making sure that we’re prudent with our spending and how we approach marketing and costs,” he said. “The entire ecosystem is in survival mode and companies with good cash balances need to put measures in place to ensure that they achieve their milestones.”

But despite this unfavorable business environment, he said the success of industry players like U.K.’s Cazoo, Mexico’s Kavak, Nigeria’s Autochek or U.S.-based Carvana is proof that the used car business is a profitable one in the long term.

“[Used-car retailing] is a sustainable business,” he said. “There are solid economics behind it and you can expect a lot of value and margins, it just takes time to build it.”

One might also assume that making cars too affordable in today’s tough economic environment could end up hurting bottom-line growth, but El Defrawy argued that that couldn’t be further from the truth.

“Affordability and profitability are not mutually exclusive,” he said. “You can make [cars] affordable and still get a good margin out of your business.”

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