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Why did CarDekho shut down used car retail biz

Used car retailing has boomed in India in the past three years as the top three players: Cars24, Spinny and CarDekho collectively ‘organised’ and cornered over $2 billion. SoftBank, Tiger Global, Alpha Wave Global (formerly Falcon Edge Capital), Tencent and LeapFrog Investments among several others flocked to back the aforementioned companies. But even as the business delivers topline quickly, can it deliver profits too? Apparently not, if we go by the experience and economics shared by CarDekho Co-founder and CEO  Amit Jain.

Even as Spinny and Cars24 have been fighting each other in the used car retail space, CarDekho shut down its retail vertical early this year. The move by CarDekho was surprising as its Series E round of $250 million was raised on a pitch to grow its used car and financial service businesses. But up against a vast unorganized network of brokers who have dominated this sector with their lower overhead and variable costs, CarDekho has chosen to cut its losses and exit.

The decision couldn’t have been an easy one considering how the pre-owned market is expected to outpace the new car market for the foreseeable future. Entrackr spoke to CarDekho’s Jain to understand the specifics of the decision. Edited excerpts from the interaction.

Why the sudden exit from the used car retail biz?

CarDekho was in that [used car retail] business for about two and a half years and we continuously lost money. Running a retail business was costly because of high burn on parking, showrooms and manpower. We were losing money in the B2C model without any sight of profitability and the cost of capital [interest on debt raised to buy cars] didn’t give any reason for us to continue.

Can you explain the business dynamics with an example?

CarDekho would buy a used car for Rs 5 lakh and after holding it for three months, the firm typically sold it for Rs 5.5 lakh. We made a margin of Rs 50,000 but look at the cost. On an average, we spent Rs 25,000 on refurbishments, Rs 7,500 on parking, Rs 15,000 interest (Rs 5,000 per month), about Rs 8,000 on manpower, sales and security. There were RTO fees of about Rs 6,000, fuel and driver cost stood at around 3,000 while management expenses per car cost around 15,000. If you do the maths, we lost anywhere between Rs 30,000- 35,000 on each transaction.

Wait. You are saying that running a used car retail biz couldn’t be profitable but lakhs of dealers aka brokers in the country make profit on every transaction. How?

Dealers don’t spend much on showroom and physical space. Most of their transactions are completed in a week or two as opposed to our model where holding periods sometimes cross three months. Further, dealers don’t bear any cost on tech, experience and their consumer acquisition cost is fraction of ours because most of the deals get closed via word of mouth.

Tell us  about the traction CarDekho had in the retail biz and overall investment in the vertical.

At our peak, we used to sell around 800 cars through retail business. We invested around $20-25 million.

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