Cover Story: Changing the way we buy and sell cars

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Translated by Google Translator: 

Translated by Google Translator:


  • Wei: Take this year’s Merdeka promotion. It was definitely better than in the previous years. I foresee that the trend of good deals for new cars will continue until the end of the year, at the very least.
This article first appeared in The Edge Malaysia Weekly, on October 3 - 9, 2016.

 

The process of buying or selling a car is often associated with tedious negotiations or fear of discovering serious defects long after the transaction is over, which cost both time and money. Enter Tookar and MUV — two online platforms that aim to make the process easier and create greater transparency so that consumers can have a better experience.

Tookar is the first online car exchange in Asean that allows consumers to buy new cars that are cheaper than those found in showrooms. The platform lets interested buyers bid for a particular model online and then matches them with dealers willing to meet that price. Hence, the car exchange acts as an enabler for both consumers and dealers.

Datuk Wei Chuan Beng, angel investor and co-founder of Tookar Sdn Bhd, says with the platform, consumers no longer have to go through the hassle of visiting many car dealers to find the best deal as they are now able to do so in the comfort of their own homes. He adds that consumers can ask for the lowest price realistically possible when bidding.

“For example, you may have seen a dealer offering a RM2,500 discount. On Tookar, you can ask for RM3,500 or even RM4,000. It is possible if you are lucky enough,” he says.

Why would car dealers accept such deals? Wei says there are times when dealers want to clear their stock as fast as they can.

“Manufacturers will always produce new cars. That is why dealers have to be efficient. Some of them try to keep minimal stock. But at the same time, they buy supplies in bulk in the hope of getting a better price from the manufacturers. So, to recover their working capital, they want to quickly sell. This leads them to be more flexible in terms of the selling price,” he explains.

Dealers also face the problem of storing the cars. Wei says it is very difficult for a dealer to store more than 100 cars on their premises. “They don’t have the space. Cars are not like clothes that you can just fold and hide away in a closet. At the same time, new models are coming out, so the dealers want to quickly clear their old stock.”

While Wei encourages consumers to ask for the lowest possible price, he says they need to bear in mind that they may not necessarily get the price. If no dealer accepts their offer within two days, he says they should increase their asking price to make the deal more likely.

Although the platform is changing the car buying and selling experience, it is not disrupting the dealers’ business. In fact, the car dealership industry is being transformed into a more efficient one with Tookar, says Wei.

As consumers are turning to online resources to conduct research on the cars they are interested in and sales can be done via the platform, dealers may no longer need to hire and train a lot of sales personnel, he adds. Also, they may not need to extend their operating hours.

“Tookar offers an easy, fast and convenient platform to generate additional sales revenue for the dealers, thus encouraging them to offer better bargains to a ready pool of buyers. That is why the platform is a win-win situation for both dealers and consumers,” says Wei.

He adds that dealers are very important stakeholders, especially in terms of the platform’s value-added services. The car dealership industry, meanwhile, is divided into four categories — 1S (sales only), 2S (sales and services), 3S (sales, services and spare parts) and 4S (sales, services, spare parts and surveys).

“In Malaysia, it is normally either 3S or 4S. The dealers have these roles and we want to acknowledge that. In fact, these roles are becoming more important as they have a clear value-add in terms of delivering warranties and other services,” says Wei.

Meanwhile, MUV is the first car exchange in the country that allows consumers and corporates to quickly sell or auction off their used vehicles. The platform has introduced an open bidding system that lets dealers from across the country to simultaneously bid for these vehicles. This allows the seller of the vehicle to get the best possible price. Also, unlike other used car platforms, it aims to increase transparency by informing potential buyers about any possible defects upfront in its listings.

MUV started out as the used car division of the Tan Chong group in 2013, with three branches in Kuala Lumpur, Penang and Johor. In September 2014, the online MUV platform was launched.

Nicholas Tan, the founder of MUV Marketplace Sdn Bhd, says the open bidding system was implemented because used cars are very difficult to price. With the system, sellers are able to get a fair price for their cars.

This is where MUV comes in. The cars that are put up for auction are cleaned and given a 180-point inspection. This gives the sellers clarity about the reserve price, which is based on the company’s records of previously transacted prices for a specific model and make. It also takes into consideration the current market price.

The 180-point inspection, which takes 45 minutes to an hour,  includes looking at the condition of the engine, chassis, steering, brakes, transmission, seats, headlights and any small exterior dents that are visible to the inspector. MUV will then give an overall rating for the interior and exterior of the car. A detailed report on the parts that are no longer in top working condition is also provided.

“Unlike selling new cars, where I give you a catalogue telling you all about the wonderful specifications, here I tell you everything that is wrong with the car. When we first voiced this idea, people laughed at us and told us it was not a smart move. They said we were not supposed to disclose everything in black and white because it would reduce the price and people wouldn’t put their cars on the platform,” says Tan.

But the move has worked in MUV’s favour. To date, it has successfully sold almost RM400 million worth of used vehicles, conducted 67 auctions for more than 18,000 vehicles and had an average success rate of 75%.

While many platforms do not disclose the final selling price, MUV records every bid and transaction to be transparent about the entire process. “The other people who are listing alongside you may be giving a ridiculously high or low price for two of the same models that are made in different years. People looking at the listings will be very confused. To them, it does not make sense,” says Tan.

While the condition of used cars cannot be compared with new ones, the former are still valuable assets to the consumers, he says. “You may not be the first to use it, but it does not matter because the price you pay is a risk-adjusted one, not the price of a new car on which all the taxes are levied. By the time you get the car, all the duties have been fully paid by the first or second owner. You, as the next owner, get the maximum economic utility.”

MUV does not plan to disrupt the used car industry, but rather collaborate with it to create a common place to orderly dispose of trade-ins and fetch the highest value to help recover the profit margin. “If we are disruptive, then we are only disrupting corrupted private agendas or deals that are done in secret,” says Tan.

“When we first came into the picture, car auctions were conducted by auction houses. They were pretty much like private parties — invitation-only and everybody knows each other. These guys would call their cronies to discuss how they would bid so that the prices never get high enough to justify the car’s worth. This is what we are trying to prevent.”

MUV is also trying to reduce the human aspect of the transaction which, Tan says, is the root of some avoidable problems. “For example, some of us may have experienced sales people who did not handle the paperwork properly, so the car still had the previous loan attached to it. It can also be the other way around if you are selling your car.”

He adds that he is also trying to eliminate the problem of dishonest dealers, who could be “double dealing”. “Let’s say you ask a dealer to get a buyer for your car. An unethical one could cheat you by intentionally stalling and telling you that he could not get anybody, thus forcing you to accept a low price. The dealer, having bought your car at a low price, can then sell it to his customers at a high price. That is why the more we move away from the need for human interaction, the better.”

With MUV, the sellers and car dealers no longer have to worry about the transparency of car auctions. As openness is the key to its business model, it will continue to focus on improving market transparency, says Tan. “We also carry the Tan Chong name, so we have a reputation to maintain and there is a level of trust to be expected.”

Tan says MUV also aims to facilitate the redistribution of used cars to places where there is demand for such cars. “These used vehicles, especially the national cars that have fully depreciated, can be bought at a very low price. So, they can be distributed to places that have a demand for them, especially where ride-hailing services are not available.”

He points out that there is a clear economic disparity in the country. By comparing the number of Road Transport Department-registered cars with the Malaysian population, MUV found that there are 2.2 cars for every man, woman and child in Kuala Lumpur, whereas it is only 0.1 car per person in Perlis.

“What we are seeing is churn. While we are fully supportive of ride-hailing and car-sharing services, together with the Goods and Services Tax, inflation, a higher cost of living and the introduction of the mass rapid transit, we are going to see an influx of used cars. MUV aims to suck up this supply and redistribute ‘the rain’ where there is drought,” says Tan.

 

Consumer behaviour has evolved

These platforms are expected to take off because consumer behaviour has changed with the advent of new technologies. Consumers now prefer to search for their desired cars on the internet instead of visiting showrooms or used car lots. All of their research is done online or via their smartphones, says Tan.

“The process of searching online before making a decision to buy a certain product is known as the ‘zero moment of truth’, as coined by Google. This is opposed to the ‘moment of truth’, where you physically check out the products,” he adds.

“This is especially true for used cars. The used car lot is not a customer-friendly place. There is no air conditioning or marble flooring. So, when a customer walks in, he would have already done some research online and is a serious buyer.”

For example, a consumer who wants to buy a family car may already have in mind a sport utility vehicle (SUV) or a multipurpose vehicle (MPV), depending on the size of the family. Based on his internet research, he would already know the price range and model that would fit his needs even before visiting the dealer.

Wei says consumers are now buying cars online because they do not want to deal with the time-consuming and stressful parts of the process. “Although it is exciting, buying new cars involves the hassle of meeting and negotiating with multiple dealers. The negotiations with middlemen are often the most tedious and unpleasant part of the experience.”

He adds that consumers no longer put an emphasis on car specifications, but look for dealers who are able to offer the best value for money instead. “Back then, people would test-drive a car to know if they are interested in owning it since there is a significant difference between the car models in the same price range. The car technology has been around for more than 100 years — it has turned into a mature technology.

“Today, however, there are few technological differences in the same range of cars. They continue to be refined until every car manufacturer gets very close in terms of mastery of the technology. If any model falls short of the technology in the same price range, it will surely fail to attract buyers. That is why nowadays, whoever gives the largest discount or additional features will be the most attractive.”

In the past, distance was always the biggest constraint of the car-buying experience. While it may not be true for those living in cities, consumers who live in small towns may only have access to one or two car dealers, who may not offer the best bargains. Online car exchange platforms completely diminish this problem by allowing people from across the country to buy cars at the best price.

“Can you imagine being in Kuala Pilah, Mentakab or Sabak Bernam and you have to travel all the way to the big city to buy cars? These people in small towns are actually equally important stakeholders in the whole market. Tookar is able to meet this demand by giving them equal access to the lowest buying price,” says Wei.

 

The future of the industry

In the current economy, is it wise to buy cars? Wei says this is the best time for consumers to get the best price as there will be a surplus of new cars. This will cause dealers to be more flexible in terms of pricing.

“Take this year’s Merdeka promotion. It was definitely better than in the previous years. I foresee that the trend of good deals for new cars will continue until the end of the year, at the very least,” he says.

Wei is also optimistic about the future. He expects more than 50% of car bookings to be done online in the next five years, especially since consumers are evidently getting more comfortable with the idea of e-commerce, including for large transactions.

Data released by the Malaysian Automotive Association (MAA) showed that 666,674 cars were sold last year, a slight increase from 666,465 in 2014. This year, however, it announced that car sales in the country were expected to fall for the first time in six years, to 650,000 units. As at June, only 275,459 cars had been sold. The drop is attributed to a subdued consumer sentiment, sluggish economy, weaker ringgit and tighter lending requirements.

Despite the decline in car sales, Tookar will not slow down. “This year, we may still see more than 600,000 cars sold. The numbers may decrease for the overall industry. However, for the number of online booking transactions, there is nowhere to go but up,” says Wei.

Meanwhile, Tan says MUV is looking to improve its offerings, which are consumer-to-business (C2B) and business-to-business (B2B). It plans to launch its business-to-consumer (B2C) service very soon. The service will allow consumers to bid for these cars as well (currently, only dealers can bid).

He adds that despite the fact that new car sales may drop this year, the used car market will continue to thrive. “We are not like other companies where the market is still growing. Our market is always there. There are 13 million vehicles in Malaysia, the bulk of which is cars and motorcycles. So as long as people continue to buy new cars, we will still have our market.”

 

 

How Tookar works

Tookar is a car exchange platform that allows consumers to bid for a particular model online. The bid period is determined by the consumer when the booking is made. When a dealer agrees on the price, the platform notifies the consumer via SMS and email.

There is no charge for the booking. The deal is only sealed with an online deposit via credit card and the signing of the Vehicle Sales Order. The buyer can discuss with the dealer additional details about the car such as colour, tinting and trade-in. The dealer will then arrange the loan and car upgrades, if necessary.

The dealer will deliver the car to the buyer for free, provided that the location is not too far from major cities, with a specific time frame. The buyer can negotiate the delivery fee with the dealer if he wishes to have the car delivered to a more remote location.

Tookar buyers get access to the same model, warranty, maintenance, promotion, benefits and services as any normal walk-in buyers. They may also go to any authorised service centre nationwide as all the dealers on Tookar are authorised by the brand principals.

 

 

How MUV works

MUV offers consumers two options — to quickly sell their vehicles to the company or sell them through an online auction platform that has more than 400 buyers at every auction.

If they choose to quickly sell their vehicles, they have to book an appointment with an MUV valuer for an appraisal. The appraisal can be done at any of the company’s 29 locations, including Kangar, Kota Baru and Batu Pahat. The valuer will inspect the engine, transmission and exterior and interior of the car. The process takes about 30 minutes.  

Once the seller agrees on the price, he is required to hand over the vehicle to MUV within five working days. He is then paid by cheque.

If the seller decides to auction the car, a more thorough inspection is required. After obtaining the “quick sell” quote, the seller has to leave the car at one of MUV’s locations for a 180-point inspection. After inspection, the reserve price is set by MUV according to its records of previously transacted prices. By auctioning the car, the seller can get up to 15% more than the reserve price.

The seller has to deliver the vehicle to MUV’s yard five working days before the auction to allow bidders to inspect it. It takes about two weeks for the seller to receive payment from MUV if the car is sold. The seller is charged a premium of 10% on the differential between the transacted price and the quick sell quote. This is capped at RM300.

If the car is not sold at the auction, the seller may choose to re-auction the car or sell it directly to MUV. Sellers who withdraw their vehicles are charged an administrative fee of RM150.

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