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Carro: How 3 friends built a $1 billion used car business | CNBC Make It - YouTube
Channel: CNBC International
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Aaron Tan is going places.
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You can get an entire car in less than five
minutes — with credit approval, with insurance,
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because we own the whole value chain.
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As the co-founder of a newly crowned unicorn
and one of Asia Pacific’s fastest growing start-ups,
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Carro’s CEO is now on the road
to an IPO.
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Some of my friends joke that I grew a horn
and stuff like that but, you know, honestly,
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it doesn’t mean anything.
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And with investors including Softbank getting
onboard, he has no plans to slow down.
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The question is, okay, now that we have reached
$1 billion, how do we reach $10 billion?
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How do we reach $100 billion?
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Carro, a play on the words ‘car hero,’
is a Southeast Asian auto marketplace designed
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to simplify car deals using AI technology.
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The company was founded in 2015 by college friends
Aaron Tan,
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Aditya Lesmana and Kelvin Chng.
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In June 2021, it achieved coveted $1 billion
unicorn status after securing $360 million
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in funding from big name backers such as SoftBank
and Indonesian-based fund EV Growth.
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The deal takes total funding to over half
a billion dollars and pits Carro alongside
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key competitors in an industry worth $50 billion and growing.
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But as CEO Aaron told me when we sat down
at his Singapore HQ, the journey has been long.
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36-year-old Aaron’s entrepreneurial story
started when he was 13.
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I went on the internet in, I would say 1996,
and that was when I first went on the internet
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and I thought, hey, this is super interesting.
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And then I effectively went into the local
library and tried to understand how do you
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build a search engine.
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As a teenager growing up in Singapore, the
computer whizz would earn extra cash by building
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and selling websites.
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But it was later, while working as a venture
capitalist in the U.S., that he saw an opportunity
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to combine business prowess with his true
passion: trading cars.
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One of the things that I found super enjoyable
really is this whole buying and selling of cars.
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I think that’s one part of it.
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The interest in automotive.
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The second part of it is my training.
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When I was in the U.S. as a VC for many years,
I remember very clearly, I met all kinds of
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automotive companies – your Beepi, your
Uber, your DriveShift.
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What this shows me was the momentum in the
space.
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While the auto resale market was flourishing
in the U.S., the same couldn’t be said for
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Southeast Asia.
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It was famously opaque, with several middlemen
making it difficult for buyers and sellers
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to get the best deals.
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Aaron wanted to change that.
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So, returning to Singapore in 2015, he teamed
up with his classmates from Carnegie Mellon’s
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School of Computer Science to create an algorithm
that would do just that.
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I wouldn’t say that I tricked my co-founders
into founding the company together, but I
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think I sold the opportunity that this could
be much more interesting than whatever they
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were doing.
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You pulled at the emotional heartstrings,
I think.
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And I think one thing that I always give thanks
to is that my team tends to be very international
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from day zero.
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My co-founders Indonesians or Thais, so this
makes it a lot easier for us when we enter
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a market.
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We don’t have as much licensing issues,
tax issues, because we have locals fronting
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the market and that is extremely important
when you are in Southeast Asia.
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The trio was onto something.
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In a region with a vast and growing, digital-savvy
middle class, price sensitive consumers were
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increasingly opting for secondhand models.
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Euromonitor’s senior research consultant,
Justinas Liuima, explained.
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Expanding middle class combined with low car
ownership rates in Southeast Asia were really
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the main factors that stimulated new car sales,
and eventually this translated into a vibrant
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used car market as well.
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The new car market grew from three million
units in 2015 to almost four million units
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in 2019, and eventually these new cars, after
the period of five to eight years, they were
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entered into the secondary market.
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Carro capitalized on that demand, rolling
out its online offering for individuals and
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wholesale dealers across Indonesia, Thailand,
and Malaysia in the years that followed.
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Meantime, it added end-to-end financial services
like loans, insurance and aftercare.
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By 2019, inspired by Netflix and Spotify,
the company launched Singapore’s first car
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subscription service, allowing users to lease
a vehicle for a monthly fee, with tax, warranty,
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and maintenance all included.
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In subscription, what we saw was the changing
behavior of car ownership.
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Really the gap in the market was to look for
people that want that flexibility.
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And, more importantly, they actually want
to try out new cars.
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This has played very well for us for instance
in EVs, where people are like I actually do
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not know whether EVs are suitable for my lifestyle.
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Can I try this for six months, 12 months,
and you know we found a good gap in the market
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that way.
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Then, in 2020, the pandemic struck.
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But what was a major roadblock for many start-ups
turned out to be an opportunity for Aaron
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and his team.
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Concerns over hygiene and personal safety
sparked new demand for private transport options.
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And with borders closed and a global microchip
shortage limiting car production,
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used car sales surged.
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Covid has definitely helped accelerate our
whole digitalization internally and also externally,
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to the general public.
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One of the many things that we launched during
Covid was this Showroom Anywhere concept.
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The idea is very simple.
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We want you to be able to do a test drive,
or for that matter enter a car itself,
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without any key.
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Basically, without seeing a single human,
get into the vehicle, do your test drive if
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you need to, kick the tires, literally.
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And as you’re done, just swipe out and the
car will just lock.
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And then if you want to buy the car, just
go onto the website or the app, click buy
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it now and literally key in a few things,
and you can walk away with the car.
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As of March 2021, Carro recorded revenues
of $300 million, up 2.5 times on the previous year.
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The six-year-old start-up says it is now profitable.
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However, that growth comes against a backdrop
of growing scrutiny on the auto industry.
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Transportation accounts for almost a quarter
(24%) of global carbon emissions, of which
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road vehicles make up 75%.
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And even as governments and automakers make
plans to phase out traditional combustion
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engine cars with electric vehicles, many existing
gas guzzlers are simply exported to developing markets.
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New cars are more efficient, they pollute
less, and if the country relies on the used
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car sales a lot, it increases the overall
emissions, especially in the densely populated
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urban areas, and adds to the health concerns
in the long-term.
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Carro, for its part, says it is playing an
important role in the transition to greener
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transport methods.
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Our job is to reuse, our job is to enable
that recycling or the reusing of the vehicles
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in the shortest period of time.
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And the second part of this is that EVs is
a strong tailwind for us, because this encourages change.
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And for a platform like us we strive whenever
there is change in the market.
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Sustainability will continue to be one of
the many things on Aaron’s agenda as he
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sets out to list his company within the next
18 to 24 months.
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With regional expansion, AI developments,
and acquisitions all on the cards, one thing’s
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for sure -- it’s going to be an eventful ride.
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What needs to happen is that between now and
then, get the company ready, controls need
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to be in place, people need to be in place,
compliance needs to be in place.
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Only then can we then say that okay, we’re ready to go public 12 to 18 months from now.
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