VavaCars is an online car-selling program platform to acquire used cars from consumers and sell used cars to registered buyers. The UK-based company is operating in two markets: initially launching in 2019 in Turkey and entering Pakistan in January of 2020. BR Research sat with Mujahid Khan who heads the company’s offices in Pakistan to discuss the need of such a platform and the potential of the used car market in the country. Before joining as country director of VavaCars, Mujahid was associated with Aman Foundation as CEO and Engro Corporation in Strategic Business Development. Following are excerpts:

BR Research: How big is the used car market and where does VavaCars come in?

Mujahid Khan: The potential is huge. If you try to estimate the total volume of trade that happens in used cars, its 4-10x of your new car market. There are many used cars in circulation and traded each year. So, for the Pakistani market, if we talk about before FY19, about 200-250,000 new cars were sold for the year. If the market is 4 times bigger than the new car market, over a million cars are being traded in the country every year which is only growing as the new car market expands. If you try to put a dollar value to that, based on the average price of the car today, it’s $10,000 per car—for a million cars, the industry size is $10 billion, which is huge. We are tapping this market and our broad vision and goal is to become the most trusted used car trading platform in the world.

BRR: What are some challenges that consumers face in trading out their used car- and how is your company solving these?

MK: There are certain challenges with trading used cars. Lack of convenience, price discovery is a big factor—how do you really determine the value of a used car and then how do you go about connecting to potential sellers. The traditional way is to advertise on online classifieds or go through friends and families or dealers.

The traditional way costs time, effort, and money. There is no security. There is no safe inspection method or apparatus since each potential buyer brings their own mechanic. One major issue is lack of transparency and payment security. Some make pay in cash, or a pay order but there is an inherent trust deficit here. Car selling has a lot of hassles.

We wanted to develop a very transparent and easy way to sell a car. We have a series of purchase centres and mobile purchasing units across the city which consumers can visit to get an inspection report that values the car. The consumer can first go online and use our pricing tool to get an indicative value for their car and later on, book a 45-minute slot to get the car physically inspected or we can send our team which can provide this service at the client’s home. We prepare a report and offer a price for the car based on the model, condition, prevailing market prices and other factors. If the client agrees on the value, we buy the car upfront.

The service is fast—it takes 45 minutes to sell off your car when typically, it takes about 45 days to sell a car in this country. We are most reliable since we are registered with the SECP. We provide a convenient payment mode based on customer’s preference. We make the payment instant, and we take care of the paperwork. Plus, the seller is dealing with one party as opposed to multiple parties. It is a one to one interaction. Technically, if you are selling your car to VavaCars, you do not even have to leave your own home. In addition, this service is free of charge, and we do an outright purchase.

BRR: What is the success rate per client visit in selling off the car?

MK: When customers come to us, they’ve already done their homework. Today’s consumer is very aware and smart, he is aware of what the car is worth. He has gone through online classifieds, conducted research, attained quotes from multiple sources including dealers and online buyers. When they come to us, they are well-informed. We quote them a price and based on their notes, they decide whether the price is good or not. The inspection itself is free and valid for a few days which means a) the seller can choose not to sell the car and b) I will still buy their car after 3 days but it would need a new inspection. Based on the cars inspected by us before the lockdown, we had a 70-80 percent success rate where people sold the car to us on the spot. That is our internal KPO—to give such a good value that the consumer will sell the car on the spot. About 15-20 percent sell to us within two days and there are several that come back after 2-3 months to sell the car we inspected.

BRR: What happens when you buy these cars—how do you make money off of this business?

MK: We buy cars from consumers and corporations; we build an inventory and then we auction them off. We have both auto traders and companies on our panel who participate in our auctions and we have several buyers bidding for each car which creates competition.

The reason we can give customers a great price yet extract value for ourselves is that we do competition-based selling. Competition is how we can get the true value for the car and that is how we make money. Also remember, that we can hold the car in inventory until we believe we can fetch a better value since car prices move up and down.

We can also auction cars for corporations. We can bulk buy by offering them a price or host an auction on their behalf for a fleet of cars the company is hoping to sell. This allows the seller a large access to potential buyers--companies and dealers—otherwise not available and which are also reliable since they are registered on our sales platform. We inspect and perform basic detailing on the cars; we promote the auction and eventually sell those cars for a listing or auction fee.

BRR: How do you conduct valuation on a car—what factors go into determining the true value?

MK: The inspection happens in 30 mins and our pricing team quotes the price within the next 15 minutes of inspection. Our pricing team is centralized which means the pricing team will not be interacting with the client and the selling representative has no control over pricing which creates a transparent system. We are a technology company, so we are constantly conducting market research, gathering data on new and used car pricing, while also looking at market dynamics and adding to our pricing algorithm. Other factors such as interest rate outlook, SBP’s exchange rate policy, any changes in import policies, taxation and regulation also provide key intelligence.

BRR: Right now, you believe 1 million cars are trading in the country. Where do you see this number going considering how expensive cars—whether new or used—have become over the past few years?

MK: Every new car, as soon as it is sold, becomes a used car. The trading cars will increase as new car markets grow. We are seeing new cars picking significantly, which will increase the pool. The ratio of used to new cars—regardless of how big the overall pool is going to rise too. Conservatively, its 4x, but I believe it will grow to 10x like other emerging markets (in Turkey, the used car market is 10x of the new car market).

The rationale of that is long-term growth prospects. As population and urbanization grows, there is more economic growth and more jobs. But just because a population is growing, does not mean they can afford new cars. The need for cars will just shift demand toward used cars. Plus, price increases in new cars is a driver of growth in the used car market—the trading pool just keeps on expanding.