Mobile apps and online aggregators can formalize the market and expand growth opportunities, finds Frost & Sullivan’s Mobility team
BUENOS AIRES, Argentina – August 7, 2017 – The used car market in Latin America (LATAM) is transforming, fueled by regulations to formalize the space, economic disruptions that curb new car sales, new channel distribution, and technology innovations. While sluggish economies will drive used car uptake in LATAM countries with low motorization rates, financing backed by original equipment manufacturers (OEMs) and banks will encourage millennials to buy their first, and middle-class families their second, car. New emission standards will also bolster the almost-new used car segment. However, financing, leasing, and certified pre-owned (CPO) programs are still under-developed in the region, and the penetration of online and mobile apps for complete end-to-end sales of used cars is low.
“The LATAM used car market is primed for online disruptors that can offer financing, easy and friendly processes, and limited warranties and maintenance plans to differentiate and add value for customers,” said Frost & Sullivan Mobility Industry Analyst Hernan Cavarra. “The focus of these startups will be to remain competitive on pricing by keeping operational costs low. Taking advantage of the learning curve from similar business models in the US market, online businesses can expect success in the medium to long terms.”
Latin America Used Car Market, Forecast to 2022, from Frost & Sullivan’s Automotive & Transportation Growth Partnership Subscription, examines the used passenger and light commercial vehicles (PV/LCV) market in Argentina, Brazil, Chile, Colombia, Mexico and Peru. The study covers opportunities, challenges and strategies for OEMs, franchised dealers, independent dealers, and online market participants.
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The total used car market in LATAM will reach 22.4 million units in 2022, exhibiting a compound annual growth rate of 3.4 percent during 2016-2022.
Key trends and factors determining the demand for used cars include:
- OEM collaboration with franchised dealerships in order to resolve informality and lack of financing, improve their brand image and equity, and increase new unit sales as customers can use their old cars as partial payment;
- Deployment of new apps, mostly in Mexico, Brazil and Argentina, which create opportunities for independent dealerships and individuals selling their cars;
- Online disruptors partnering with OEMs, dealerships, and financiers to create shared value through data such as customer preferences and new car reselling patterns; and
- OEM efforts to promote used hybrid and electric vehicles through CPO programs designed to ease battery life anxiety among buyers.
Several innovative players are helping accelerate market growth in peripheral used car markets like Peru and Mexico that are informal, unprofessional, and poorly regulated, and in large markets like Brazil, where oversupply of new cars due to an economic crisis and influx of low-cost Chinese cars restrain used car sales. For instance:
- KAVAK offers end-to-end buying and selling of second-hand vehicles in Mexico along with the commitment of selling the car offered by individuals within 30 days.
- InstaCarro.com has a disruptive business model that promises to sell any used vehicle in an hour and a half or less to any of more than 1,500 dealers that buy it through an online auction. In its first year of operation, the company reported more than $32 million in revenue.
- Localiza, one of LATAM’s biggest car rental companies, has a used car division that uses smartphone apps, offers good financing options by taking the customer’s used car as part of the transaction, and provides insurance and regular maintenance services.
- Superbid, which specializes in online auction sales, also offers car fleets.
- Nissan Mexico offers almost-new and used car eCommerce through its listing-driven website, and has a 154-checkpoint CPO program, financing, warranty, on-demand maintenance and services features, and original spare parts.
“Government regulations, OEM CPO programs, active participation in the market through franchise dealerships, and startup apps for 100 percent used car sales processes will build trust among buyers and boost confidence in used cars,” concluded Cavarra.
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Latin America Used Car Market, Forecast to 2022
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Corporate Communications – Americas
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