Market until today: buying a used car is a gamble

Have you ever bought a used car with a defect that you either did not detect or that was not mentioned during the sales process? In such situations, it is totally understandable to feel ripped off, when the joy around the “new car” (albeit second-hand) doesn’t last for long. Such an experience negatively impacts consumers’ trust in the used car market.

Trust is an essential concept to the used car market, on which the purchase is usually based on. As a customer, I need to rely on my seller’s sincerity, although they generally have a significant information advantage. Due to a lack of transparency, amongst other factors, used car dealers are often perceived as dubious or even shady. A study by the German technical inspection association “TÜV” revealed that about 40% of participants expect the seller of a used car to manipulate the speedometer. Despite people’s misconceptions, the used car market in Germany is huge: in 2016, seven times more used cars were sold than new cars.

The evolution of the used car market

Considering this promising business opportunity, sales of used cars has extended to multiple channels in recent years. In addition to the traditional, physical sales channel, as well as the known channels for private sales (such as Ebay), more and more online platforms specializing in used car sales such as have appeared in the German market. Furthermore, a trend towards buying a new car directly online is emerging: Capgemini’s Cars Online Trend Study 2016 shows that about 75% of automotive customers in Germany, China and the USA would consider buying a new car online without booking a test drive. Thinking of the used car market, what conditions need to be fulfilled that customers would buy an unseen used car online?

Customer expectations in the used car industry towards information transparency (for example, regarding the price and vehicle history) and a satisfying customer experience during the online sales process are rising along the same lines. Like in other industries, customer-centric business models (instead of product-centric ones) appeared alongside digitalization in the automotive industry.

But how, exactly, can a customer-centric business model be adapted in the used-car business? From the point of view of a customer: how can a nerve-racking, non-transparent used-car purchase be transformed into a seamless, carefree and satisfying online buying experience?

Solutions for an optimized customer experience: digital used-car purchase with “Karosso”

The Berlin-based start-up “Karosso“ addresses these questions by developing an innovative end-to-end business model for online used car sales and purchases in the German market. Thereby, the founders of Karosso, Johannes Stoffel and Sebastian Specht, aimed to rebuild customer confidence in the used car market by making it more secure and transparent. Johannes Stoffel summarizes the company’s mission:

“We want to take the pain out of the process of buying and selling a used car.”

Karosso provides a best practice by differentiating itself from other online used-car platforms with regard to three factors:

  1. an end-to-end service in the purchase process of a used-car (incl. delivery)
  2. a stock of high-quality used cars that have been examined in detail by a neutral expert
  3. a 14-day cash back guarantee

The key to the success of Karosso is the provision of a technical report made by an external, neutral expert which complements the usual descriptions and photographs provided on other platforms. Hence, the start-up increases the comparability of its vehicles and thereby ensures maximum information transparency.

The purchase process merely takes place online and is streamlined and comprehensive. Additionally, a consultation on the phone can be requested via a free hotline. Aiming for a carefree customer experience, nationwide delivery is included. 

Backstage at Karosso

How does Karosso’s business model work? Johannes Stoffel highlights that customers in the used car market tend to be less driven by emotions than customers in the new vehicle market. Instead, the price often determines people’s purchase decision.

On the one hand, prices for the vehicles offered on Karosso’s platform need to be generally lower than prices at the traditional dealer around the corner to create an incentive to buy online. On the other hand, however, Karosso (obviously) needs to reach their target margins. To optimize purchase prices, Johannes Stoffel explains that the right vehicle needs to be purchased for the right price and especially at the right location.

Not being fully able to control that a purchased car is not being used between examination and delivery has been a challenge for the start-up. As a solution, Karosso has successfully started a pilot with a popular rental car company. Since then, the company has purchased used fleet vehicles from commercial customers to standardize the quality of its vehicle offering. This way, Karosso ensures that the car’s condition does not change between examination and delivery, such that damages and so on cannot occur.

Of course, the quantities of used cars offered on the platform is also a key to attracting potential customers. On large platforms such as, approximately 1.2 million cars are offered on a daily basis. In order to raise its competitiveness, Karosso strives to increase its fleet continuously. Finally, to enhance the visibility of their platform, the start-up cooperates with the German press for promotions, engages in social media marketing and operates its own YouTube Channel (Karosso TV).

An outlook – how will the used-car market develop?

Karosso has revolutionized the German used car market, but its success does not remain unobserved. As other players from outside the industry, such as the insurance company “Allianz”, enter the used car business with comparable business models, the sustainability of Karosso must be put into question. Johannes Stoffel critically reflects on the business model and considers focusing on specific vehicle categories in the long term.

“Karosso will position itself in a business niche and succeed in the future.”

According to Stoffel, digital innovations such as the connected car and e-mobility will fundamentally change the used car market. Specifically, he advises established Original Equipment Manufacturers to “be aware of new competition from the Asian continent.”

The car of the future will collect vehicle usage data and will proactively send error messages (keywords predicting maintenance) to prevent potential defects and troubleshoot software problems “over the air”. As a result, the vehicle history will be reported holistically and the used-car market will reach a maximum level of transparency, which will impede the viability of shady used-car dealers.

Thus, competition in the digital used-car market will shift and focus on optimizing the customer experience during the buying process. Karosso has already recognized this trend and therefore occupies a huge business advantage. Others are sure to follow.