How is Carro removing speed bumps from Southeast Asia’s used car market?

The market for used cars is notoriously inefficient, held back by buyers’ fears of overpaying or unwittingly acquiring a car with hidden defects – a “lemon”. It even inspired a famous paper on information asymmetry by Nobel Prize-winning economist George A. Akerlof. ¹

Believing that technology could help overcome these obstacles, three college friends established online used car marketplace Carro in Singapore in 2015. The platform uses data and machine learning to address the lemon problem in used car dealing, improving customer satisfaction and reducing the risks of unsold inventory.

Among the firm’s solutions are technologies that can detect even the smallest dents and gauge the health of vehicles from the sound of their motors,² as well as proprietary pricing algorithms designed to ensure fair quotations and prices for their inventory. Moreover, the company accepts returns and gives full refunds for up to five days after purchase.

Carro also provides financing for used car purchases, catering to an underserved market. While most vehicle lenders focus on new cars, where valuations are clear and often backed by manufacturer warranties, Carro uses its proprietary data and technology to manage credit risks. It has grown its loan book to more than SGD500 million (USD368 million) while keeping its non-performing loan rate below 0.5%.³

HSBC is supporting Carro’s rapid expansion with a SGD75 million five-year credit facility, secured against a revolving pool of auto loans. In a first for the company, the proceeds can be used across Singapore and Malaysia, providing a multi-jurisdictional financing that bolsters Carro’s existing liquidity and consolidates funding for its auto loan business in a scalable, flexible solution.

“Securing this landmark financing from HSBC is a huge validation of our digital ecosystem-led business model. This enables us to serve the underserved consumer segment even better,” Tan added.

Funding growth and innovation

Carro is expanding rapidly beyond Singapore. It is now online in six other markets: Indonesia, Malaysia, Thailand, Japan, Hong Kong and Taiwan. It has also added to its offerings, including aftersales servicing and repair, and car loans and insurance through its financial technology arm, Genie Financial Services. The firm is also the first recipient of funding from HSBC’s new USD1 billion ASEAN Growth Fund, established to support leading high-growth startups in Southeast Asia’s booming digital economy.

Fast-growing firms like Carro need working capital to grow their asset base, achieve economies of scale and fulfil their market potential. In Southeast Asia, the opportunity is a digital economy with transactions estimated at USD218 billion in 2023⁴ and a used car market forecast to reach USD62 billion this year.⁵

“I applaud HSBC’s ability to structure creative and bespoke financing solutions for start-ups like us, resulting in this one-of-a-kind asset-backed financing in the region. This significantly strengthens our balance sheet and diversifies our funding channel, particularly in Malaysia, so we can focus on growing the business more effectively,” said Carro CFO Ernest Chew.

The funding comes at an especially challenging time for the region’s startups, when high interest rates have hurt valuations and reduced access to liquidity.

“During this period of market volatility, it’s important that fast growth companies such as Carro are supported consistently to realise their full potential,” said Priya Kini, Head of Commercial Banking at HSBC Singapore.

“We have a longstanding relationship with Carro that started when they were still at the early stage of their growth. It’s especially gratifying to know that we can continue to deepen our support through the HSBC ASEAN Growth Fund as they scale and further expand their business,” said Kini.