Ernest Chew
CFO
-Carro
Carro is a Singapore-based auto resale marketplace that raised a USD360m Series C led by SoftBank Vision Fund 2 in May 2021, with participation from MSIG, EV Growth, Provident Growth, Indies Capital, Endeavor, Ion Pacific and many other existing shareholders. SoftBank has been backing Carro since its venture capital arm SoftBank Ventures Asia first invested in the startup in 2017.
GPCA spoke with Carro CFO Ernest Chew about the auto resale opportunity in Southeast Asia, and how the pandemic has affected consumer preferences for pre-owned vehicles.
GPCA: Why did you join Carro?
Ernest Chew: I previously led HSBC Asia’s automotive investment banking franchise. I also advised a PE firm to acquire a used car business in Europe at the height of the global financial crisis. It has done tremendously well, and I always thought, if there was an opportunity like that in Southeast Asia, it would be hugely interesting. The geography is large enough. It has one of the highest rates of new car sales growth and car population.
I was intrigued by Carro, in the way they use AI and technology to solve pain points within the used car space. It’s such a low-trust environment, and Carro provides transparency, creates trust in the marketplace business, and aims to capture value across the entire ecosystem — financing, insurance and aftersales:
Financing: We do financing in house, and have a loan book for SGD200m. It’s been a very successful business for the past four-five years. At the height of the lockdown, our NPL was under 1%, and now it’s below 0.5%. Not many financing companies with loan books can claim they have such a good NPL. We are crisis-tested. And we passed with flying colors.
Insurance: We partner with insurers to deliver innovative solutions, including NTUC in Singapore, and our shareholder MSIG, who we partnered with to roll out behavior-based insurance.
Maintenance: Our brand promise is to be transparent, trustworthy and seamless, and provide peace of mind. If we sell it, we will fix it. And you have peace of mind that you will get the highest quality of service and repair.
What is the opportunity for auto resale in Southeast Asia?
We believe there are over three million used cars sold annually in Southeast Asia, with an addressable market over USD40b. Carro operates in Singapore, Malaysia, Indonesia and Thailand — the largest markets for automotive — with expansion plans across new markets, as well as potentially new products.
In terms of traction, we closed our financial year in March 2021 with 2.5x revenue growth. We have been EBITDA positive for two consecutive years. And we did this during an unprecedented economic lockdown. We also raised debt and equity during the lockdown, including a SGD200m loan facility from banks and others, and USD360m in equity.
Do you think the crisis has impacted consumer preferences around pre-owned vehicles?
In some ways, yes. During this crisis, with jobs on the line and economic headwinds, even if you want to buy a new car, the supply chain disruption means you might get it a couple months later, so a high quality used car becomes an attractive alternative.
Also, the ability to buy cars online has fundamentally shifted. For decades, consumers browsed cars at physical showrooms. Increasingly, people are open to browsing and buying cars online. It’s a shift in mentality the crisis presented to us. We think buying cars online is here to stay and growing. But it’s still a small part of the market, and there is tremendous upside growth potential. This is where we come into play.
How does Carro look at its environmental impact?
When it comes to electric vehicles, we are proactive in supporting the government. We are providing green loans for EVs and exploring what we can do for electric vehicle owners in their ownership cycle.
Anything else you think is important to share with investors?
There’s been a lot of recent funding for auto resale marketplaces. But it’s a capital-intensive business. Cars are not cheap, and if you have your own inventory, like Carro, they are expensive to hold and require significant working capital. Also, if you get things wrong, it can go horribly wrong.
If you finance cars, that’s also capital intensive, and if you make a loss on one loan, it’s a lot to make up. You need AI-enabled/credible systems, teams and capabilities to run it. What’s going to differentiate the players in this space in Southeast Asia is going to be the amount of capital you can raise, among other factors.