Unlike many other startups, the used-car platform Carro, which just raised US$110 million in mostly debt financing, is riding on positive momentum amid the Covid-19 pandemic.

The Singapore-headquartered company claims that it saw record revenues in September – a 500% year-on-year growth – and has been EBITDA positive in the last three quarters.

The Carro Automall in Jakarta / Photo credit: Carro

The growth may be attributed to the used-car industry, which has often benefited from economic downturns, as well as the Covid-19 pandemic speeding up behavioral change in customers, according to Carro chief financial officer Ernest Chew.

“While the pandemic is going to come and hopefully go, I think the change in behavior could be permanent,” Chew says.

Still, Carro’s most recent financial statements show how thin the margins can be in the used-car business. A lot of the growth is also expected to come from the company’s three markets outside of Singapore – Indonesia, Thailand, and Malaysia – but as of now, the city-state still contributes the lion’s share of profits.

But ultimately, Chew is confident that the company’s ecosystem play – which CEO Aaron Tan previously described as “the Alibaba of cars” – would generate S$1 billion (US$733 million) in revenues by 2022.

Recession-proof business?

Chew finds that Carro’s growth despite the Covid-19 crisis is “not an unusual phenomenon” in the used-car industry. When he was still in investment banking, Chew saw a used-car auction business thriving during the 2008 global financial crisis.

“If you have an economic headwind, people’s jobs are on the line,” he explains. “Even though I wanted to buy a new car previously, I may probably downgrade to a used car and save some money there until there’s more visibility in the economy.”

Covid-19 has also disrupted the supply chain for new cars, where purchasing a certain make and model may mean waiting for weeks or even months.

“The industry is counter-cyclical in that sense,” Chew adds.

There is also strong potential for used cars in emerging markets like Southeast Asia. A report by the venture builder Momentum Works shows that Southeast Asian countries have relatively low car ownership rates and car sales per capita.

These countries are also seeing high growth in used cars. In Indonesia, for instance, 2.5 million units were sold last year. Between 2009 to 2019, the used-car market had been growing by a compound annual growth rate of 6%. In Thailand, transactions involving these vehicles expanded by 17% in 2019 compared to the previous year.

Getting to S$1 billion in revenue by 2022

Statement of confidence