Chief Financial Officer at Auto1 Group
Markus Boser joined AUTO1 Group as Chief Financial Officer in 2016 and is responsible for all financial activities of the Group. Prior to joining AUTO1, Markus was Managing Director, Head of JPMorgan’s Technology, Media and Telecoms Investment Banking practice in EMEA, where he executed strategic M&A, equity and debt financings for a variety of high profile European technology and internet clients. He previously worked at Deutsche Bank as a Director in Technology Investment Banking and Equity Capital Markets. Markus holds a J.D from Columbia University, an LL.M from Universität Tübingen and a B.A from the University of Virginia.Read moreView Profile Page
On the request of Auto1 Group, this interview is only published in text form.
Disclaimer: This interview is for informational purposes only and should not be relied upon as a basis for investment decisions. In Practise is an independent publisher and all opinions expressed by guests are solely their own opinions and do not reflect the opinion of In Practise.
Markus, a good place to start would be to explain the differences between the European and US automotive market from an offline and online perspective?
While the markets are similar in size, there are also some differences. The overall market in Europe is incredibly fragmented, even more than the US, both in terms of number of dealers, of which we estimate there are about 200,000, but also in terms of types of cars. On the dealer side, that fragmentation is not only on a European basis, but on a per country basis where in Germany, the top 10 dealers represent 8% of B2C and if you look at the total European used car market it is less than 2%.
This fragmentation exists across all different markets and while both the US and UK have several listed used car dealerships, Europe has virtually none. There is one in Finland and another in Sweden, but at the moment none in Germany, Spain, Denmark, Portugal or Switzerland. The UK probably has seven or eight and the US 12 to 15. Obviously, Carvana, Carmax and Vroom have taken much of the profile but there are also a host of others.
Furthermore, there are many OEMs in Europe; almost each country has its own. Germany has six, France has two – it all depends on how you measure it – Spain has SEAT, Italy Fiat, and there are also local sub-brands, like Skoda in the Czech Republic. The culture of buying cars has been much more individualistic, at least historically. A typical German or French middle-class family order their Skoda or Peugeot, with a very individual set of features such as panoramic roof or special gearshift. The OEM websites offer an unbelievable depth of engines, colors, styles within their configurators.
We estimate there are 140,000 different combinations of makes and models in Europe, which excludes model year and mileage. In the US, it is mainly the Japanese and US OEMs and they tend to have fewer makes and models and more standardized car types. European OEMs have a stronger control over distribution than in the US. That’s the first difference, the higher fragmentation in terms of both dealers and cars
Secondly, Europe is not one country, so you end up with many different tastes and styles. That leads to a bigger cross-border opportunity in Europe, particularly in the B2B market. In the UK BCA is a huge player with a massive market share above 60%, I think. In the US, you have Cox Automotive and then you have KAR and together they have about 20% to 25% of the B2B market in the US, I believe. There are a variety of other offline wholesale players, making it fragmented across many layers, countries and styles.
In addition, and compared to Carvana, there is a different financing market. The US has a deep sub-prime market whereas Northern Europeans tend to finance their cars through local relationship banks. It also depends on the local regulatory environment.
In Europe, many used car dealerships are classically family owned and began post World War II. Local wealthy families were approached by OEMs to buy cars ahead of time and those local dealerships grew and are now owned by the third generation, for whom it has been a very nice cash flow business.
There have been some attempts at consolidation of local dealerships, but they have tended to keep the local brands. They might consolidate some basic back-office functionality, but they have not invested in brands or tried to create a single simple nationwide brand. We see that as the opportunity, similar to Carvana and Carmax in the US. There is no Carmax in Europe, Germany or France; they simply do not exist.
Nonetheless, on many levels there are many similarities to the US. For normal offline car dealerships, the margins are quite similar though in Europe it’s hard to see because most dealers are private.
What role do classifieds, such as Auto Trader, play in Europe?
Relative to the US, the classifieds have a little more importance in Europe but it depends on the market. In Germany, both Mobile and AutoScout classifieds have done a great job consolidating eyeballs for used cars though the dealers complain they are paying too much. They have a greater importannce in Europe but, again, it depends on the market.
In the UK, Auto Trader is almost the place to go for consumers. They own the consumer mindshare; if you’re going to buy a used car, you at least check Auto Trader for the price and a comparison. Does that mean that Cazoo or AUTO1 need to offer better inventory or service to steal eyeballs from AutoScout or Auto Trader?
We view classifieds as an important partner and list virtually all of our retail cars, as it is a way to get to the consumer. They are a vital part of the ecosystem. Auto Trader's position in the UK is unique as no individual European country has a player who is as significant as Auto Trader. The UK is truly an island because of the right-hand drive steering wheel which makes cars much less fungible, whereas in the EU a French-speaking German could buy a car through the French classified and simply drive it to Germany and register it there.
Of course there are challenges because you have to speak French and be willing to drive there and back and deal with the hassle of registration. Legally, you have a right to buy and sell that car anywhere in the EU, but you have to deregister it first which AUTO1 does daily. The UK is a unique market from that perspective, but relative to the US, the classifieds have a more important role.
Is it harder for companies like Cazoo or Cinch to compete with Auto Trader who is formidable in the UK? Do you think that makes it more difficult to spin up a new network effect?
There is always a large up-front investment in doing that and the Cazoo numbers suggest they are certainly making that investment. We too are obviously investing significantly, both in terms of brand building and marketing, but classifieds play a different role from what we do. I view classifieds similar to Google. Nobody asks whether Zalando has to market on Google and, in a similar way, the used car market is a little bit unique in Europe because it is a focused search engine for used cars in each of those markets, so you advertise on that search engine.
AUTO1 through Autohero is creating a brand for the full car buying experience. From an online consumer perspective, you see your car, click a button and receive your car a couple of days later. That new experience obviously needs enough critical mass to make it interesting and build a brand, but at the same time, it is a very different experience than buying a car from a classified. Our cars are listed on classifieds alongside Joe Bloggs; with a private person you have to knock on their door. With a dealer, you still have to send them an e-mail and knock on their door or call them to arrange a test drive. All that is available on classifieds but by creating a unique experience of quality used cars which you can order like any other online good, it is not competing with the classifieds but rather with those dealers who have the same inventory as AUTO1.