After UK used car dealer Cazoo became one of the fastest growing European tech companies ever to reach unicorn status, investors are still betting that there’s room for other players to emerge as the pandemic boosts the overall market for used cars.
The latest to raise is Motorway, a UK startup trying to reinvent the way motorists sell their vehicles. It’s just raised £48m.
The Series B round was led by Index Ventures and participation from BMW i Ventures — the investment arm of BMW — and Unbound. Index’s Danny Rimer will join Motorway’s board. The company also received early investment from Shakil Khan, cofounder of Prima Materia and early investor in Spotify.
The triple effect of the pandemic, sustainability concerns and changing consumer perceptions have pushed used car demand up. On Motorway’s site, the average price of a used car is 8.2% higher than it was six months ago. In the UK, the used car market is worth £60bn annually.
Launched in 2017, Motorway operates a marketplace where car owners can upload their vehicles and car dealers can bid at a daily auction. Motorway’s model is different to Cazoo’s — the unicorn sources its cars from auctions and dealerships, rather than enabling consumers to sell their own cars.
Motorway currently sells about 4k cars each month, about £50m in sales volume, all in the UK.
The shifting used car market
“The used car market has been very buoyant for the last three or four years,” says Tom Leathes, CEO of Motorway. Things have ramped up in the last 12 months however, due to the pandemic.
Coronavirus has brought on supply chain problems across the globe, particularly those for the chips needed to build satnavs, impacting the delivery of new cars. This, combined with a changing perception of buying used and wariness about public transport amid the pandemic have encouraged more people to purchase a car, Leathes says.
Danny Rimer, partner at Index and a new member of Motorway’s board, says the shift is also down to consumer sustainability concerns.
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“Folks are not super keen on just buying new all the time, but rather to sweat the asset, and get more value out of it, from an environmental standpoint,” Rimer says.
The problem Motorway wants to solve
Despite the buoyant used car market, the experience of selling a car continues to be a difficult and complicated process, says Leathes.
“Pretty much anything in cars has been a difficult consumer experience for about 50 years,” he says. “There's the haggling, the lack of transparency, people not knowing how much the car's worth and the hassle of actual handover.”
There are also pain points for dealers, Leathes says, who usually buy stock at car auctions, a much longer process than doing it online.
What Motorway changes
Motorway helps car owners to upload their vehicle to its website and get an estimated valuation quickly.
Leathes says that, typically, the price Motorway comes out with is 10 to 15% higher than people would get elsewhere.
Cars are uploaded onto the company’s website once each day and dealers can bid on them in a timed auction. There are about 3k dealers currently using Motorway and Leathes says that 90% of cars get bought on their first day on the site. Dealers are charged a fee on each car — it’s between £250 and £1k depending on the model.
Although the company doesn’t rule out expanding to more geographies in the future, Leathes says the size of the UK market makes it worth focusing on for the time being.
He anticipates the momentum behind used cars to keep going. “The shift will remain,” he says. ”If there were less new cars this year, that means less used cars next year, and so on. And so supply and demand means that the increase in the market is going to continue.”