Selling your used car on the internet just got a whole lot easier, courtesy of Cars24. The Gurugram based startup has solved a problem that most have overlooked. But how exactly does it do that? Let’s read about Cars24’s Business Model.
Few companies in India think about genuinely solving the common man’s problem as much as Cars24. The Gurugram based startup was founded in 2015 with one key vision in mind – to solve the hassles everyone faces when trying to buy or sell a used car. In six years, the company has grown tremendously, covering nearly every urban city in India – precisely what their “Kashmir to Kanyakumari” ad depicts.
This fast growth does come with its fair share of problems, however, what’s more important is the millions of customers benefiting from not having to deal with spammers and scammers ever again.
In this article, we’re going to take a look at how the Cars24 business model revolutionized the used cars market in India, how it works, the people behind its success, the investors, the funding, and most importantly, how Cars24 makes money through this. After all, it is valued at $1 billion USD today. Let’s get started with understanding what exactly Cars24 is.
What Is Cars24?
At its very core, Cars24 is an online marketplace for buying or selling used cars. It’s not a completely new idea, since we’ve already seen many startups like Cars24, notable ones being CarDekho.com or CarTrade. So why is everyone talking about Cars24 so much, so little about Car Dekho, and very rarely if none at all, about Car Trade? The answer lies in Cars24’s business model, and the people driving this business to the skies.
We’ll talk about the business model extensively in a bit, but what makes Cars24 stand out from the crowd is its design to filter out everyone from the herd of potential buyers, and pick the buyer who’s willing to offer the highest buck for your car. Yes. we’re talking about Cars24’s one-of-a-kind auction system. Here, buyers will bid for a specific amount for the cars that they want to buy, and the highest bidder gets to buy the car. The seller gets the car delivered to a nearby Cars24 outlet, and the team handles everything else from there on.
You can think of Cars24 as something similar to an eBay for cars. It is so simple, yet it solves every issue the customer faces while selling their car. The Cars24 auction seems almost impossible to think of, yet four people had the galls to pull it off, and get out of it making a fortune. Let’s talk about the Cars24 founders for a bit.
Fun Fact: CarTrade was founded way back in 2009, and you’ve probably never heard of it before now. That just goes to show how effective the Cars24 marketing team has been in reaching out to their targeted audience and hence why it’s been more effective in making money.
About The Founders
Vikram Chopra, Mehul Agrawal, Gajendra Jangid and Ruchit Agarwal are the four horsemen behind the success that is Cars24. The startup was deemed as “India’s newest Unicorn”, being valued at $1 billion USD after their recent funding (more on that in a bit) in November, 2020. Although this title was only recently stolen by Zerodha in 2021, that doesn’t discredit what a great impact Cars24 has made, and it’s all thanks to the brilliant minds steering the startup to what it is today.
Let’s start with Vikram Chopra, CEO and Co-founder of Cars24. The 37-year old was also the Co-founder of FabFurnish, an online furniture store. A former investment analyst at Sequoia Capital and business analyst at McKinsey & Company, Vikram is one of the masterminds that put Cars24 on the map.
Following him is Mehul Agarwal, COO of Cars24. Similar to Vikram, Mehul has a strong head about him as well, with an MBA from IIM Calcutta, and work experience with BCG. Gajendra Jangid,CMO, and Ruchit Agarwal, CFO, are also very strong people and an integral part of building Cars24 into a unicorn.
Together, the four masterminds at Cars24 have formed a business model that is quite unheard of in the Indian market, for a various number of reasons. But surprisingly, it has worked a great deal for them, and even managed to bring in some revenue out of it. Let’s find out what this business model is.
The Cars24 Business Model
Like we talked about earlier, Cars24 works chiefly on its selling, or more aptly put, its auction interface, making sure that the customers have a seamless experience. The business model drives on having an online auction system set up for anyone in the country to participate and place a bid within an allotted time frame.
Once these bids are placed, the bidders are informed of the highest bidder and the bidding amount (of course, you see the bidding amount in real time as well) that won. After the bidding process, the car is delivered to the highest bidder at the earliest time possible.
If you think this is all it takes for a startup to reach the coveted $1 billion USD mark, we’d like to add something to this. Cars24’s business model doesn’t just stop at the online bidding, but rather it actually starts from there. The company works to remove every stone, twig and rock between a customer’s buying and selling process by making the whole transaction completely end-to-end.
What this essentially means is that Cars24 will pick your vehicle up, give it a thorough checkup, estimate a fair value for the starting bid, initiate the bid, complete the bid, announce the highest bidder, and deliver the vehicle to the highest bidder. And it repeats this extensive process to sell over 150,000 cars annually.
This, at a high level, is how Cars24 works. Basically, it removes every single nuance between the buyer and the seller, and provides a pristine customer experience through and through. Plus, it makes good money doing it. Let’s take a closer look at how much Cars24 makes out of these sales.
Fun Fact: Cars24 also has an online evaluator to help you pre-determine the value of your car, just in case you ever need to sell your car. It is a constantly updated algorithm that keeps track of current market trends to place a ballpark value on your vehicle. Plus, it’s free, so just in case the wife complains, you know what to do.
Cars24 does make money through this system, and it makes a lot of it. But just in case you’re wondering how, there are really just two major sources that make Cars24 money.
Cars24 makes anywhere between 4-5% commission on each transaction made on their platform. It is also a safe player, operating an asset-heavy model wherein the cars are first bought and then a bidding campaign is launched. This is a great strategy that mitigates some of the risk the company faces while buying a used car, but it in turn brings more customers, so that is a huge bonus.
You also need to pay a small transaction fee if you need to sign up for bidding on the platform, according to sources. So even that amount can add up significantly to Cars24’s revenue sources.
When we said Cars24 offers a seamless buying and selling experience, we weren’t kidding. The company makes sure customers get what they want, even if it’s money to buy a car from their site. Cars24 offers loans to those looking to purchase a used vehicle, and it charges interest on those loans. While these interest rates are claimed to be some of the lowest in the market, they do add up significantly to the business’ cash inflow, with interest rates going from 8% and upwards.
Funding and Investors
Sequoia Capital India is a name that frequently pops up in these discussions, and rightly so. They’ve been behind some of the most successful startups like CRED, Khatabook, and whatnot. So if they’re backing Cars24, you know the company is doing something right. Their latest $200 million USD fundraising stunt from DST Global made headlines as it propelled them into the unicorn status.
Currently, the company has raised close to $700 million USD, from leading investors like DST Global, Global Car Group, and KCK Global. Sequoia, which we talked about earlier, participated in a group $50 million USD funding round, which was one of the biggest boosts to the company at its very early stages.
Cars24 is well on its way to scaling into one of the biggest auto startups in the country since Maruti. The company has grown beyond everyone’s wildest expectations, and it still continues to grow. However, as we mentioned, this has its fair share of problems. The company has revealed their trump card – the bidding system – and it won’t be long before competitors of Cars24 adopt this method, so they will have to come up with something bigger and soon. But with four brains at the top to try new ideas as well as the money to back it, we’re cautiously optimistic of Cars24’s growth and really hope to see more updates from them soon.