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Digital Enablement Shaping the Pre-Owned Car Industry in Saudi Arabia - Ken Research

30-Jul-2020   Mr. Omar Tahboub, Designation: Deputy CEO, Syarah   Author: Arun

The automotive industry including the used cars business in Saudi Arabia is one of the largest markets in the entire GCC and Middle East region. The pre-owned car industry is keeping up with shifting preferences towards digital mediums and has witnessed the entry of various auto focused platforms in the last few years. In conversation with Mr. Omar Tahboub, Deputy CEO at Syarah, we attempt to explore the positioning of the platform in the fragmented market and what the future might have in store for the pre-owned car industry in the Kingdom.

Here are some edited excerpts from the interview:

Q.  According to you, how is the Used Car landscape in Saudi Arabia positioned? How have the conventional offline dealerships and online platforms contributed to the industry’s growth?

The size of the used car business in Saudi Arabia is massive. According to our estimation, 1.7 million used cars are sold every year and there are around 2,500 dealerships in the country out of which 30-40 are large authorized or OEM certified dealerships. The demand in Saudi Arabia, just like many other countries, tends to be concentrated in the large metropolitan cities including Riyadh, Jeddah & Dammam. However, we have been seeing an increasing demand from smaller towns that are dispersed all across the country, which has been an important driver for us to launch our e-commerce service The demographic nature of the market along with the online connectedness of the Saudi population as well as the addition of women drivers have been important growth drivers for the industry.

Q. The pre-owned car ecosystem in the country can be segmented into two halves. One would be organized including multi-brand outlets & OEM certified pre-owned dealerships having multiple branches across the country. The other would be unorganized space, consisting of small dealerships as well as C2C transactions. Basis upon on this, how would you say that the industry in the Kingdom is positioned? Is it inclined towards organized or unorganized?

The overall preference in Saudi continues to be towards buying from individual sellers, when it comes to used cars. Some of the smaller dealerships, not including the franchises, have given a sort of negative reputation to the dealerships in the industry. Although according to our experience, some dealers do offer extremely high quality used cars but generally there some sort of negative perception towards cars sold by these small dealerships. However, peer to peer sale is a more rigorous process and involves the possibility of scams. As per my personal experience and the number of leads generated on our platform, I would say that primarily, the used cars take place between individual sellers & buyers rather than through dealers. However, franchised dealerships and some smaller dealerships that have shown commitment to selection processes to ensure the quality of the cars, have been able to have strong used car business and command better prices.

Q. Which brands and types of cars are currently leading the industry on the basis of number of used car sales?

Following the trend of new cars and in general what is observed in the country is that low priced, entry-level Korean, Japanese and Chinese cars in the range of SAR 30,000-50,000 such as Nissan Sunny, Chevrolet Spark or even European makes such as Renault Symbol and lower-end MG or Changan Chinese makes continue to be actively present in the used car market. Furthermore, Toyota also continues to have a very solid reputation, especially in the used car market due to its durability and quality.

Q. How does Syarah position itself in the industry and what business model does it follow?

Syarah is an online auto marketplace, serving car sellers and buyers, both in the new and used car segments. Initially established as a business servicing the dealerships and bringing the leads to them, we have recently expanded and started offering an e-commerce service through SyarahOnline to allow car buyers to purchase their cars completely online from wherever they are in the country and the same cars are available to buyers in Riyadh or in smaller cities such as Jazan or Arar. Since SyarahOnline has just launched, we are currently only focusing on successful conversions rather than unit economics and the margins are pretty slim at this point.

Q. Out of the different business models in the online used car retailing, which business models are currently witnessing faster growth and rising adoption in the industry?

In Saudi, the generic classifieds model, where sellers and dealers can post their listings continues to appeal from a quantity point of view, as the friction in terms posting an ad is low.  On the other hand, there are other models similar to what we have done which we can refer to as a Vertically Specialized Auto Classifieds Marketplace. The model has a special focus on automotives and bringing specialization as the model is much more catered from a posting & buying point of view. As per our experience & the feedback received from dealerships that are listed across various platforms, the quality of leads & conversion rate is much better on the specialized platforms due to the presence of more serious buyers.

Q. How does Syarah differentiate itself and its offerings from other platforms?

Dealerships that work with Syarah get various specialized apps each for their photographers and managers and we also have our different internal apps, say a specific app for used car inspection.  It’s a very thought through experience to ultimately ensure the highest quality possible in the auto classifieds segment. Our recently launched service SyarahOnline has grown significantly, especially in the last month. Prior to the increment of VAT from July 1, the new car sales witnessed a spike and we were able to sell 420 cars, including both new & used, solely through our e-commerce platform. In my view, in order to be seen as a viable digital destination by car buyers, you need to have a clear proposition. It either has to be a plethora of choice and quality of content that a marketplace like ours offers or perhaps the authority that franchised dealerships enjoy that gives them an edge over other players. 

Q. What are the future plans of Syarah for the used car business?

We believe that there are a number of technologies, using which we can create a much more delightful user browsing experience.  We are trying to understand and incorporate various such technologies on our platform including 360 exterior & interior viewing experience, ensuring videos and comments on used car posts, polished & pleasing car backgrounds and enriching the specifications of each car through our partners to enhance the browsing experience.  We are also looking at tools for online merchandizing experience that is, leveraging online consumer behavioral insights to send personalized ads and content to the buyers. In a nutshell, our focus is towards using technology and smarter ways to present information about cars to provide our purely digital customers a delightful experience while simultaneously focusing on our new offering SyarahOnline.

Q. How has Covid-19 impacted the sales volume of used cars in the country? Do you think the recent increment in VAT will impact the pre-owned car industry? 

With Covid-19 and the recent VAT, the online services have received a lot of exposure which has created significant demand. Used cars will enjoy being generally exempt from the VAT, particularly in peer to peer transactions. The recent increment of VAT to 15% further increases the delta between used & new car prices. The VAT increase will certainly have a negative impact on the new car sales and hopefully a corresponding positive impact on the used car sales. While we initially focused only on new cars on our e-commerce platform SyarahOnline, our focus has been shifting towards used car sales, especially after the announcement of the VAT increment.

Q. Do you believe that offline dealerships as well might shift towards digital platforms in the future?

There are certainly signals that indicate that some of dealerships are considering shifting towards the digital space. However, the industry is really fragmented and many of them are working on simple manual operations. So the bulk majority of them would not have much interest in the complexity of having an online presence along with a physical store. The franchised dealerships on the other hand are already having digital marketing budgets and are interested in creating digital landing experiences, so the interest of exploring the online space is there but they will definitely face practical challenges. We believe that similar to what is observed in other countries, the various mediums of used car sales will continue to co-exist in the industry as each medium offers a unique user experience.

Q. What would be the emerging trends that would shape the used car industry in the future?  

More than factors very specific to the auto or the online auto industry, I believe that the macro-economic factors such as VAT, oil prices and the overall buying power of the consumers will significantly impact the used car industry. In Saudi Arabia, the online connectedness of the population plays a very important role and will continue to impact the decision making process of the buyers. With social distancing becoming the new normal due to Covid-19, the shifting preferences towards e-commerce will give a boost to the online segment in a country like Saudi.

 “Used Car buyers in Saudi are increasingly looking for a trustworthy buying experience enabled by what technology has to offer.  Buyers are responding very positively to our newly launched e-commerce service which gives buyers the peace of mind to buy used cars from the comfort of their homes.” – Omar Tahboub, Deputy CEO, Syarah

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