AutoScout24 (AS24), the pan-European automotive classifieds owned by private equity firm Hellman & Friedman, has announced the launch of Smyle, a digital retailing service for used cars — cars that AS24 will sell under its own brand.
To us at the AIM Group, this appears to be a historic first in automotive transactions. There are no other current examples of leading classified businesses selling used vehicles on their main site directly under their own brands. Cinch in the U.K. launched a similar service last year, but its classified offering was tiny, while Prosus is selling directly in Poland via OtoMoto Klik, but the service is not available via the main site.
How will it work?
At present, Smyle is integrated into the AutoScout24.de site and only available in Germany. In time, if commercially necessary or advantageous, we believe it could also be launched as a separate site and expanded across AS24’s European markets. (The Smyle.de domain is already taken, though there is no information on who owns it.)
“Today, we launched AutoScout24 Smyle — the biggest product innovation in our company’s history. This new service will enable you to buy used cars in Germany online in under 10 minutes and have it delivered right to your doorstep. Fully financed, insured, and registered — ready to drive!” stated the company’s LinkedIn account.
From a consumer perspective, the service functions similarly to products offered by digital dealers in Europe, like Germany-based AutoHero (Auto1’s consumer-facing division) and U.K.-based Cazoo.
After a consumer chooses a car, they select a payment option: cash or finance (expected to be available soon, from Santander). A deposit of 199 euros must be paid to reserve the vehicle (or a binding credit agreement entered). Any balance must be paid within three days by bank transfer. The vehicle is delivered to the consumer’s home “within a few days.” Buyers have a 14-day, no-quibble refund period once the car is delivered. They get a month’s free comprehensive insurance (from Axa) and a 12-month warranty (backed by Allianz).
AS24 states that only selected used vehicles from selected retail partners in Germany will be sold, in accordance with high-quality standards. All vehicles will have run less than 100,000 kilometers and are no more than five years old. A 25-point independent inspection by AutoScout24 will ensure the vehicle meets its quality standards.
“AutoScout24 Smyle sells cars entirely online. Ordered in 10 minutes and delivered to your door in a short time. Around 40% of drivers are already interested in buying online — an enormous market potential. As Europe’s largest online marketplace for cars, we are starting with the largest product innovation in our company’s history. The complete digitization of car sales is to the benefit of dealers and consumers,” Edgar Berger, CEO of AutoScout24, stated in the news announcement.
How does the business work?
A key difference from AutoHero and Cazoo is that vehicles on sale via Smyle are sourced from “retailers” — around 20 dealers initially, offering around 1,000 cars. AS24 charges dealers a “mid-sized three-digit euro amount” in commission, Felix Frank, CMO and CCO of AutoScout24, told Germany-based magazine Kfz Betrieb. The fee is tiered based on the sale price of the vehicle, and charged only if a sale is made. Consumers cannot negotiate the price.
According to Frank, the industry has to prepare for fundamental change in the used-car business: “E-commerce is the next wave in automobile trade. We want to co-shape it. We are evolving our platform from classifieds to e-commerce. We are not competing with dealers. We enable retailers to sell autos online without having to make the necessary investments.”
However, dealers have to take into account that they give up additional revenue streams like finance, insurance or warranties. There’s also no branding benefit — there’s no indication on Smyle about the origin of the vehicles.
The service operates a “just-in-time” purchase model: once a customer reserves a car, it is bought from the dealer immediately and resold under A24’s brand. This model — pioneered by BuyACar in the U.K. and InstaMotion in Germany — avoids the risk and cost of holding sizeable inventory, while protecting the dealers who provide the vehicles from the risk and cost of returns under Europe’s strong distance-selling regulations. AutoScout24 expects up to 15% returns initially.
The platform uses an algorithm to select vehicles that meet the criteria for online purchase, which excludes, for example, those with significant damage. Dealers can select the vehicles they want to make available on Smyle — for now, these vehicles also have ordinary listings on AutoScout24.de, for purchase in the traditional way. The company has set up three logistics hubs in Germany to orchestrate delivery.
How will dealers react?
The biggest challenge to the Smyle launch is likely to come from the German dealers that are paying to advertise cars on the AutoScout24.de site and now effectively have AS24 in some respects competing against them. This could particularly be an issue if Smyle retail partners are selected in a way that excludes many dealers from participating.
However, we’ve seen other marketplaces successfully overcome this obstacle despite initial pushback. Cinch.co.uk, owned by the U.K.’s leading car wholesaler Constellation Automotive, saw a similar reaction when it pivoted its business model from classifieds to transactions, but there has been no visible lasting impact on Constellation Automotive’s broader business.
Cinch was perhaps the first to begin selling cars directly while running a classifieds operation, but its classified offering was small and it was never a leading classifieds vertical.
The one significant classified entity that we know sells directly is Prosus-owned OLX Group in Poland via its OtoMoto Klik site, which was launched in July. However, the service is not available directly on the main site. Users have to make contact through a lead form before a transaction can occur.
What will make Smyle successful?
The launch of Smyle now brings AS24 into direct competition with Auto1, which saw a strong IPO in early 2021, and Cazoo, which also went public in August and plans on expanding across European markets, including Germany.
How well equipped is AS24 is to challenge these well-backed rivals? That will become clearer once we know more about the company’s plans. Does it have the marketing funding and ambition to win against the digital dealers? Can it match their quality in vehicle refurbishment and preparation, logistics and customer service? This is much easier for a “full-stack” operator. How will it manage car exchange given its complex relationship with dealers? Can it quickly shift its TrustPilot rating (earned for classified advertising not e-commerce) from a lowly 2.5 to match AutoHero’s 4.3 or Cazoo’s 4.7?
The AIM Group will continue to follow the latest developments and report over the coming weeks.
AutoScout24 is present in 18 European markets, with more than 43,000 dealer customers. The company claims around 30 million monthly users online. In 2019, the company was sold by Scout24 to Hellman & Friedman for $3.2 billion U.S.