Transfer-of-ownership necessary to regulate used car market

Interview with the CEO and Co-Founder of CarFirst, Raja Murad

Raja Murad Khan is the Co-founder and CEO of CarFirst, which is a first of its kind, used car, online auction platform in Pakistan. In June 2016, Murad founded CarFirst with two employees, and now the company is held by the Frontier Car Group (Delaware LLC).

Previously, Murad worked as the Managing Director at one of Rocket Internet’s venture in South Asia. Murad has also been a part of a private education network where he rolled out a nationwide network of schools where he incorporated modern day educational technology tools.

CarFirst is transforming the way used-cars are traded in Pakistan. Following are the edited transcripts of a recent meeting with Mr. Murad:

BR Research: The last time we met, CarFirst had just received series A funding. And last year it received a second round of funding. What have the funds been used for this time?

Raja Murad Khan: CarFirst strategically invested its funding with the focus to grow on three fronts: Operations, Innovation, Services, and Programs.

CarFirst focused on expanding its operations by opening eight new purchase centres. It zoned in at opening purchase centers at commercial hubs in Karachi, Lahore, and Islamabad. CarFirst also launched Pakistan’s first all-female staff purchase center in Lahore catering to its strong customer demand. The center is purely run and operated by a female purchase center manager and an inspection specialist. We also opened up more warehouses in all three cities to manage our inventory, which participates in live auctions for our strategic partners.

When it comes to innovation, CarFirst focused on developing new technologies with the sole aim of changing the way used cars were traded in Pakistan. It set a new benchmark in innovation by launching Pakistan’s first live auction platform for used cars. CarFirst also further developed its algorithm, which estimates a fair market price of a used car based on our inspection report. The company also developed various tech-based tools that aid in accurately diagnosing a car when it comes in for an inspection.

Lastly, CarFirst focused on responding to its strong customer demands by launching new services and programs such as Car Bazaar, Dost program, Merchant program, City sales exchange program, apprenticeship program, outdoor inspections of corporate fleet program and financing and insurance services.

And we plan to do much more in 2019 with the goal of revolutionising the way used cars are traded in Pakistan.

BRR: What has been the growth story for being a successful start-up? Can you share some interesting numbers? The last time we met, CarFirst had done about 100 trades in a month.

RMK: At that time, CarFirst had 90 employees with 10 inspection centers in Pakistan. And today with consistent hard work and determination from my team, we employ over 200 people and have 24 purchase centers across Pakistan with many new services and products under our belt. Our top line has grown to several times the monthly volume we discussed last time, but the more interesting fact is that we are growing into new value chains and expanding our presence throughout the entire auto-sector ecosystem. By connecting car owners to insurance, financing, warranty, inspections, and a host of other services, we will leverage not one but many revenue streams for its future growth.

BRR: You have partnered with OLX. What kind of synergies do you hope to garner from this partnership?

RMK: CarFirst and OLX together successfully hosted our Car Bazaar in Karachi and Lahore, which brought thousands of car seller and buyer together, offering one-stop-shop services for all things related to cars, such as evaluation, certification, financing, insurance, live auctions and many more, and established it as a mainstream auto event. We had one planned for Islamabad on the 3rd of March, which was cancelled due to the ongoing security situation in the country. But we are going to announce a new date very soon.

BRR: Looks like CarFirst is the only such platform. What’s your business model and do you see any competition in the coming years?

RMK: We don’t have competitors in the market; our model is our distinctiveness. Our model is based on actually making it easier to trade used cars. To do that, we play a part in the transaction. We’ve got purchase centers across the country where people bring their cars; we check them; vet them; our team of market and technical experts guide potential sellers on the current market value of their car and make an offer to buy accordingly; we negotiate and if the offer is accepted, we put the car on auction.

Currently, we do not see any competition coming up in the market. However, with a fresh new wave of investments coming in Pakistan, we hope to see more entrants in the used car trade market. The more companies try to make buying or selling a car transparent, secure and convenient for customers, the faster CarFirst will achieve its vision of revolutionising the Pakistani auto sector.

BRR: What are some of the key challenges you are facing? What about the regulatory environment?

RMK: A major challenge has been an unevenness of the market. Inflation in used car prices, changes in tax and import policy with the change in government has made the Pakistani sellers unsure about their decision to sell their car. The immediate currency devaluation has also spiked up the prices of the used cars.

During verification of documentation - we face tremendous time lag from the excise and taxation department and customers often get impatient while waiting. We face a lot of challenges such as, a lack of qualified data and while getting vehicle verification and paperwork. Ownership structures and the way vehicles are transferred also cause delays in trade.

The used car market is a highly unregulated in Pakistan and we hope to see more policies from the government in aiding the trade of used cars in Pakistan.

BRR: Recently, successive price increases amid the rising cost of bank finance has been restricting growth in the auto sector. And it seems the sector will remain sluggish in the immediate future. What is your view of the auto sector?

RMK: In my view, the auto sector hasn’t been too influenced by successive price increases amid the rising cost of bank finance. However, we have noticed that the prices of imports have gone up by 15 percent concerning the accountability of taxes due to which growth grinds to a halt, in light of the fact that the on-going schemes by new government have requested for a money trail. On the contrary, the local trade industry and Japanese imports won’t be influenced by the prices increases and will remain the same as it will beneficial for the country as a whole.

BRR: Do you think there is a need for a used car policy? The government has again imposed restriction on used car importers whereby the duty and taxes on all imported vehicles under the personal baggage or gift scheme would be paid out of the foreign exchange arranged by Pakistani nationals living abroad or the local recipient supported by a bank encashment certificate that shows the conversion of foreign remittance into local currency. The same restriction was imposed and subsequently removed after motor dealers protested. How do you see these developments?

RMK: The used car industry will most likely grow and thrive, considering the money trail scheme that our new government has developed, which will lead to lower imports. This way, it won’t be easy for low to mid-sized dealerships to sustain their businesses and they will eventually move to local registered car trade for the long run. However, this may increase traffic and improve the reach of our business.

I would like to highlight three policies that should be implemented in Pakistan’s used car market.

One. The need for a solid transfer-of-ownership policy definitely exists and should be created by the government, making it necessary for the car buyer to transfer the car on his name upon purchase. Herewith, the new government receives better support in regards to tax collection and accountability of one’s wealth.

Second in my opinion, another used car policy which should be followed is the grading of cars. Some countries have this policy sorted, while others haven’t. It’s a process where every car goes through a careful quality control checklist regarding any issues or shortcomings that may be dangerous for the drivers or may be a hazard for the environment. The grading process is followed to meet the standards of the cars running on the roads, it educates the drivers, disciplines the traffic, increases road safety and cleanliness, and is environment-friendly.

And thirdly, the government can impose a limitation on car model years, where older car owners should bear extra taxes to have clearance for driving authorisation. This way tax revenues will be increased, road traffic would be reduced, and buyers will be discouraged to drive old car models which may increase sales of newer cars to promote the new entrants in the auto sector.

BRR: What kind of expansion plans does CarFirst have for the next five years?

RMK: We hope to open our purchase centers and warehouses in every city, making our services available to all of Pakistan. So whosoever is willing to sell their car in any city of Pakistan has the option of driving down to a CarFirst purchase center. We aim to make the used car trade market more transparent, secure and convenient for anyone wishing to buy or sell their car. We aim to completely revolutionise the way cars are traded in Pakistan by offering comprehensive solutions for all things related to cars, such as evaluation, certification, financing, insurance, live auctions, and many more. Our aim is to keep adding value across the customer’s journey, improving efficiency and transparency at every milestone of the car trading process.