When Sujay Tyle was thinking about how to build up Frontier Car Group, his new automotive marketplace, he didn’t want it to be in the U.S. or Europe.
A year ago, Tyle, originally from the U.S., moved to Berlin to launch Frontier Car Group with partners André Kussmann, the former director of engineering at Auto1 in Berlin, and Peter Lindholm, an investment manager at Millicom who helped Rocket Internet grow its global operations and strategy.
They decided to focus on six markets and, since then, have raised $36 million U.S., establishing operations in Nigeria, Pakistan, Turkey, Chile, Indonesia, and Mexico.
“The automotive sales sector has traditionally proved flawed in every country,” he told the AIM Group. “Despite growing consumer demand, there has been a lack of a centralized, trustworthy marketplace for people to buy and sell cars efficiently at good prices.”
Frontier Car Group is essentially a brick and mortar company empowered by technology, Tyle explains. “We set up hundreds of small inspection stations — like a gas station — throughout the countries where we operate and tell customers they can sell their cars in under 45 minutes to a pool of verified buyers — car dealers — whom we have assembled. It’s a similar model to Germany’s Auto1.”
In our latest profile of the key speakers to present at the AIM Group’s AutosPlus2017 classified conference in London in October, we asked Tyle to tell us what’s unique about working in emerging markets.
What unique challenges do you face in your market?
Tyle: Building a used-car marketplace in developing countries is very capital intensive. Although the dollars needed are lower, access to capital is limited. There are very few global investment firms in Pakistan, for example. We are attacking these challenges by doing live auctions to reduce working capital needs and by leveraging our being a global company to access funds.
There is also macro volatility in emerging markets. Ramadan falls in a different month every year, which introduces sometimes unforeseen seasonality. That, in turn, impacts where we spend our marketing dollars. Regional issues, such as the referendum in Pakistan last April, also affect growth. Being present in different countries helps us to reduce these seasonality effects.
Finally, customers from different countries have distinct preferences. So we made the decision to localize much of our operations at the country level, which is very different than the way Rocket Internet operates, for instance. The way we think about selling cars is different in each location. However, we also leverage the synergies of centralizing a few areas of our business, such as product, engineering, and online marketing – all of which are highly technical.
What will you be speaking about in your presentation at AutosPlus2017?
Emerging markets are often run on a cash-based economy where the transfer of vehicle ownership is done on just a piece of paper. That can be very dangerous, but customers don’t have any alternatives. I will talk about how to bring more trust and transparency to the process in these markets where, when you post a classified ad, you get 50 calls and 20 people show up at your house.
Classifieds still play a big role in emerging markets: Up to 60 percent of used-car sales are transacted this way. Most sites are still Web 1.0 (think about Craigslist’s interface). I’ll talk about how to redefine the customer experience of selling a used car beyond just the classifieds by use of innovative platforms, new business models and products.
We see a lot of changes in automotive classifieds. What are the most interesting developments worldwide you’ve seen so far?
The shift from online to offline is very interesting. A big focus in the investment world over the past five to seven years has been on what can be done online, from start-ups with different products to disruptive business models. But, no matter what people do, automotive consumers still buy and sell mainly offline, especially in emerging markets.
The in-person experience is not going away, so the most interesting developments I’ve seen are how a few players are really revolutionizing the offline experience, transforming selling a car from a boring and time-consuming function to a more fun, straightforward business.
A second interesting trend is how companies are building trust. Some companies are heavily spending on advertisements, while others are partnering with credible entities. We understood early on that the dealers were a critical part of our business, as they are the ones buying the cars. We decided to “overcommunicate,” educate and work together with them to really assess their needs. We invited them to our inspections, we loaned them smartphones and we set up email accounts for them. We then followed up with dealers who were starting to use our platform.
How big a part of your business will artificial intelligence or machine learning become?
Machine learning and data science already help us in several aspects of our business, from optimizing our live auction algorithms to building a definitive pricing guide — something that doesn’t exist in most of our markets. There’s nothing like Kelley Blue Book in Nigeria or Indonesia. So, we’re now building an equivalent valuation service through the deals we close and the price offers we get every day from thousands of buyers.
When the markets we’re in become more developed, we may be able to automate the entire experience and reach a level of initial artificial intelligence, but that’s 10 to 15 years down the line. Customers are not ready for that yet. Technology penetration may be high because of mobile phones, but customers don’t trust things that are too technical. They like being able to touch a product or speak to an actual human being.
In your opinion, what are the biggest challenges the automotive classified industry faces in the next three years?
For us, the biggest challenge will be scaling our internal processes to stay in line with demand. We’ve grown considerably over the past year — sometimes 50 percent, 75 percent or double each month. Everything has to align at once: opening the new business, investment, cash flow, technology.
Externally, there are challenges in many of our markets keeping up with global regulation. The ownership transfer process, for example, is still largely done through the governments and we have to keep our processes consistent.
A last challenge — and this is one that’s applicable for the industry in general — is that as business gets more global, we’re seeing more used cars imported and exported across country lines. Used cars have been a lucrative business in part because there’s not been a lot of import and export, which guarantees a large margin.
A more free flow of vehicles and information about vehicles, along with pricing transparency, will mean markets become more efficient. The industry has thrived on information asymmetry, but that won’t be around for that much longer as more successful marketplaces pop up across the world.