Globally, only 2% of car sales take place online. That meager figure, according to Tarek Kabrit, co-founder and CEO of Dubai-based online auto marketplace Seez, makes car buying one of the last multitrillion-dollar industries that has yet to be fully digitized.
“To a large extent, you still buy a car today the same way you did 100 years ago,” Kabrit told PYMNTS in an interview. “You go to the dealer, you sit there and get your ID, you sign papers — the same [old-fashioned way].”
That 2% figure is predicted to go up to 30% in the next 12 years, he said, presenting a huge growth opportunity for startups to capitalize on the growing consumer appetite for online car buying.
Industry players like U.K.-based Cazoo and Carvana have already paved the way, he pointed out. The latter operates one of largest used car marketplaces in Europe and has recently cemented its leadership position in the region with expansions to France, Germany, Italy and Spain.
Read more: Online Car Retailer Cazoo Rolls Into Italy
Arizona-based Carvana, on the other hand, has grown to become one of the biggest dealer groups in the U.S. within a decade of launch, selling its 1 millionth car and achieving its first positive earnings quarter last year.
See also: Cazoo Expands Online Car Platform to Spain
Overall, like how platforms disrupted and shifted offline industries online, Kabrit predicted a similar trend will likely take place in the automotive retail space.
“Think about Amazon, Airbnb, Uber — none of these [platforms] own the inventory. What they did is to create the infrastructure [like] tech integrations, payment logistics, operations, customer support, and then they connected supply and demand […],” Kabrit explained. “So, in the auto space, we feel that the winner is probably going to be a platform as well.”
That winner won’t be Carvana or Cazoo though, he argued, especially given their heavy cost structure. Instead, Seez has positioned itself to capture that market, helping dealers in the Middle East who are “going through an existential crisis” to compete effectively with well-established international players.
A ‘Shopify’ For Car Dealers
That crisis, Kabrit explained, is due to a two-pronged threat: New car manufacturers like BMW are increasingly looking to bypass dealers and sell directly to consumers, while online platforms cut into the used car market share.
To address this challenge, Seez has partnered with the biggest dealers in the United Arab Emirates (UAE) who together sell about 180,000 cars annually to create “an asset light version of Carvana or Cazoo,” he said.
Today, the online retailer, which launched in 2016 and operates in Saudi Arabia and Kuwait, has expanded beyond the Middle East and is now focused on Europe, targeting less crowded markets like Denmark where it recently launched in partnership with the four biggest local dealers. The company also plans to launch in Portugal by the end of this year.
According to Kabrit, in building the Seez ‘asset light’ marketplace, the company quickly realized the need to first build a Software-as-a-Service (Saas) solution — sort of a “Shopify for car dealers” — to give dealerships that are still fully offline the tools required to make the transition online.
“We can build the coolest tech-enabled marketplace with home delivery, digital buying [and a] two-week return [policy], but if the dealers are still fully offline, we’re not going to get very far,” he remarked.
He compared that strategy to what online restaurant-reservation service company OpenTable has successfully adopted in the food industry, first offering clients a reservation SaaS solution to upload their menus, tables and chairs and then launching its own marketplace once it had onboarded over 1,000 restaurants.
Survival of the Fittest
Globally, the massive shortage of new cars and the significant delays in the delivery of new cars has led to a double-digit used car price surge, said Kabrit — but with rising interest rates, the price inflation for used cars will likely stabilize moving forward.
As the global competition heats up in the online auto retail space, it is likely that the next few years will see greater market consolidation, he added.
This is already happening in Europe, where Cazoo has been flexing its muscles with a series of acquisitions in recent years. So far, the company has snapped up Italian online car retailer BrumBrum, Germany’s leading consumer car subscription platform Cluno, and a handful of smaller marketplaces and retailers in its U.K. home base.
Related: Online Car Marketplaces Drive Profits for MENA Startups
As well as heightened competition, Kabrit also pointed to a “popped bubble” — one that was associated with the popular, years-long startup model of “growth at all costs” a few years ago, but no longer appeals to investors today.
“Investors are [now] shying away from startups that say, ‘We will lose money for five years but once we have 80% market share, then we will try and become profitable.’ That story isn’t resonating anymore,” he said.
Against that backdrop and considering the recent drying-up of venture capital investment, Kabrit added that a lot of startups won’t survive the tough environment, but that is to be expected.
“It’s part of the game,” he said. “Every once in a while, there’s some sort of survival of the fittest that comes around, and those who make it through usually end up being better and stronger.”
For all PYMNTS EMEA coverage, subscribe to the daily EMEA Newsletter.
We’re always on the lookout for opportunities to partner with innovators and disruptors.
Learn More