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New Digital Retailing Business Models In Used Car Market Take Center Stage With Covid

James Huang | 2022.05.06

The shine may have gone off the new car business but the gloss is still very much on its used car counterpart. Today, used car sales outstrip that of new cars globally . And the key game changer, to my thinking, has been the introduction of new electric vehicle and clutch of new digital retailing models that have brought a zing to the used car space. They have essentially reinvented how used cars are bought and sold (no more used car salesman jokes!), while making every element in the process simple, convenient, quick and transparent.

Based on broad similarities—whether B2B, CRC or B2C—and their revenue streams, I believe these new business models can be grouped into six distinct segments.

The first is, of course, the basic C2C/B2C marketplace that serves as a platform connecting sellers and buyers, where both interact directly to complete the transaction. A typical example is the Facebook marketplace, where my friend advertised his BMW 325i.  He had a few potential buyers contact him within hours of posting the advert and before the end of the week, sold!

On this specific occasion, the journey, from advertising the sale of the BMW till its actual purchase, was free. 

Then, secondly, there are the traditional brick & clicks marketplaces that are essentially the online sales channel of traditional car dealers, car rental companies, and car leasing companies, which sell both new and used cars.

A good example of this is Inchcape online portal. They originally targeted professional buyers/the B2B segment. However, in 2021, it launched its retail platform targeting the B2C segment. This platform was positioned as a remarketing channel to sell its used car stocks that were exiting first life leasing.

The interesting aspect of these marketplaces is their ability to enable a complete online journey from booking to buying a used car. Given the traditional nature of the business, the revenue stream in the bricks & clicks model is through margins generated on the sale of the used car. More recently, this has been reinforced with value added offerings such as financial and insurance services and, in some cases, warranties and logistics support for car deliveries.

What I regard as the third model is the broker marketplace, a digital/online platform involved in selling a used car on behalf of a seller. Think of it as a spruced up, online version of visiting a car dealer, viewing the details of available stocks on car windows, and having an agent handling the end-to-end sale of the car. Here, revenues are created through commissions on the sale of used cars and, sometimes, through value-added services.

The fourth model is that of online car retailers, whom I always think of as the online siblings of traditional bricks & clicks models, albeit with a vital difference. The point of divergence stems from their origin and primary focus as being online stores, which may or may not have an accompanying brick infrastructure.

The fifth digital retail approach is represented by aggregators, like car8.com, who are just that – online platforms for wholesalers, auction houses or dealers to list their offerings in one place.

And, finally, there is what I like to call the Big Boys segment which includes companies like eBay EBAY and Alibaba. These heavyweights fit the definition of many other segments but are unique enough to qualify for their own exclusive segment. Their distinctiveness springs from the advantages they possess in terms of exceptional financial depth, consumer reach, geographical spread, and infrastructural strength.

Who Will Succeed?

So which of these six models is likely to succeed? I am bullish about the prospects of fifth model simply because it is redefining the customer experience in its own way.

As online used car marketplaces really take off, especially post Covid, I think the key performance indicators for these digital retail models will be very similar to those in the traditional used car business. However, one vital element of success, which I cannot overemphasize, will be the ability to build trust and create transparency across every step of the customer journey.

These trends are a strong indicator that used car companies really need to be looking beyond just buying and selling, and instead providing a gamut of attractive financing/usership offerings, including used car leasing and subscription.

Covid and digitalization have created an opportunity for industries everywhere to think big, bold and different. And the used car business is very much on track to do just that.

New Digital Retailing Business Models In Used Car Market Take Center Stage With Covid
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