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How Has The Used Car Boom Given Birth To Multiple Unicorns?

Many used car dealers are making serious money as ‘like new’ cars are worth nearly as much as new. How have the new, high profile online only “super” used car dealership brands been capitalising on these favourable trading conditions?

We are living in strange times for many reasons – and here’s just one – in 2021, second-hand cars are like gold dust. For months, we have covered why this is the case, with shortages of computer chips, copper, aluminium and cobalt all contributing. As a result, there aren’t enough new cars to meet demand. Because of this, used cars are selling like hot cakes and selling for thousands more than they would have just 18 months ago. So perfect times to raise funds with the purpose of growing an online used car dealership super brand.

Early in the year we reported on the battle for supremacy between Cinch, Carzam and Cazoo in the rapidly emerging online used car dealership market. They’ve not rested on their laurels and have been making serious waves despite the Covid storm continuing to surge around them. And they’ve even been joined by more companies looking for a big chunk of used car market pie.

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How much is Cazoo worth?

Serial tech entrepreneur Alex Chesterman’s online used car dealership start-up firm, Cazoo was listed in August on the New York stock exchange at a £6 billion valuation. Going public provided the firm with huge financial backing to turbo charge revenue growth.

The deal also made Cazoo the most valuable UK firm ever to launch on Wall Street. The owner of the Daily Mail has increased the value of its shares in the company by just short of £800 million.

Don’t forget about Cinch

Constellation, the owner of rival online brand Cinch has also announced ambitious plans. It intends to buy the listed dealership Marshall Motor Group in a huge £325 million deal. Marshalls had only weeks early announced its purchase of Motorline. That acquisition added 48 sites to its operation.

And what have Carzam been up to?

You probably remember that Carzam was founded by Big Motoring World CEO Peter Waddell. It received funding from ex Cox Automotive boss John Bailey. Well, Carzam recently raised an additional £112 million to fuel its growth in the online used car market. The funds, according to Carzam wil be used to ‘keep pace with consumer demand’ and bring used cars to the market ‘faster’.

Technology is making buying used cars online easier, and faster, than ever

In addition to the Carzam, Carzoo and Cinch another relatively new platform is also making a huge splash in the industry. Motorway, an online used-car marketplace, has secured $190 million in funding, bringing it to a staggering valuation of $1 billion. In the tech world, reaching this valuation gives a firm the much sort after status of a “unicorn.”

The platform allows people to value their car at speed, find the highest price and have it collected from wherever they are within 24 hours. Motorway was launched in 2017 and has reportedly arranged the purchase of more than 100,000 cars so far.

Motorway making hay while the sun shines

Though Motorway was founded almost five years ago, they attribute their recent success to the “behavioural change driven by the pandemic, with both dealers and car owners increasingly seeking to buy and sell cars online”.

The increase in the value of second-hand cars has increased so dramatically. It is difficult to imagine that the company would have their £1 billion valuation without it.

The company has recorded 300 per cent growth in third-quarter sales, with gross transactions of $411 million compared with $105 million in the same period of last year.

Motorway currently sells about 8,000 cars a month, and it hopes to deliver $2 billion of completed sales on the platform within 12 months.

What sets Motorway apart from the rest?

Users have noted a subtle but essential difference between Motorway and competitors in the online used-car marketplace space.

Both online and offline, used car sellers have historically concentrated their efforts on selling cars. You only have to think of the stereotype of the pushy used car salesman. In today’s climate, selling isn’t the tricky bit – it’s getting the stock in the first place.

Motorway has a winning strategy in today’s market: focus on sourcing cars, not selling them.

Right now, used cars are like gold dust. It’s finding them, not shifting them that is the mission. The messaging on Motorway’s competitors Cazoo, Cazam and Cinch websites entice site visitors to buy a used car. Motorway’s headline reads ‘Sell Your Car The Motorways Way’.

Tom Leathes, CEO of Motorway, said: ‘‘Our team has worked incredibly hard to help our dealers buy the best stock from the public in a seamless way, supporting them to supercharge their margins and leverage the power of online trading’.

UK based company Carwow have also secured £41.5 million of funding to expand in this space. They are looking to expand the reach of their ‘Sell Your Car’ product. This service works by enabling consumers to market their to dealers who can bid and buy it directly from them.

How long will the Online Used Car Dealership boom last?

Money certainly is pouring in to the used vehicle segment of the motor trade market. Many wonder how Motorway and others like it will fare once used vehicle prices stabilise and new car stock is more plentiful. A Motorway’s advert features a customer selling his car from his bathtub while car dealers compete to win the car. The truth of today’s market isn’t that far from this metaphor.

Some think this is a bubble that will pop. It is logical to assume that car manufacturers will want to recoup losses once normal production levels resume. Cheap new car prices could shake up the used car industry. Companies with business models and valuations based on the existing level of supply and demand could struggle to sustain their current trading performance. Though a huge influx of new cars doesn’t look like happening anytime soon.

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