Brazilian market decisive for Mexican used car startup Kavak

Investment of R$2.5 billion (US$485,000), inventory with 20,000 cars, 16 million visitors on the site, besides 92,000 in the stores: The superlative numbers tell a little of Kavak’s trajectory in the first year of activities in Brazil, completed in July.

With a valuation of US$8.7 billion, the Mexican startup for buying and selling used cars over the Internet is considered the largest in Latin America and makes clear its intentions in the domestic market.

“Brazil is among the biggest markets in the world [it is third in used cars, behind the United States and China]. It is the most attractive that exists on the planet right now,” Roger Laughlin, cofounder and CEO of Kavak in the country, told IstoÉ Dinheiro.

“Besides, the consumer in the country is familiar with technological platforms and passionate about cars.”

According to the Venezuelan executive, the segment moves US$100 billion annually in Brazil, besides being responsible for 14 million transactions. “It’s the biggest opportunity ahead of us,” said Laughlin, who participated in the company’s opening process in Mexico in 2016.

Then there was the expansion to Argentina (2020) and, more recently, to Chile, Colombia, Peru, and Turkey. In Brazil, the expectation is for the resumption of the market, which recorded record sales in 2021 but retreated in 2022 due to the high inflation, which impacts the interest on financing, and the increase in the price of models.

According to the National Federation of Associations of Automotive Vehicle Dealers (Fenauto), the daily average of transfers in July was 55,400 units, a result 3.3% higher than the previous month. However, 7.2 million units were sold in the year’s accumulated total, a volume 18% lower than in the same period in 2021.

The executive Enilson Sales, president of Fenauto, visualizes a slow but steady market recovery, besides revealing positive expectations of results until the end of the year, which is a better period for sales.

“But we will also keep an eye on the possible factors that may influence the market, such as interest rates, credit, and even the elections,” he said.

You’re mistaken if you think that Kavak has passed unscathed by the turbulence of the segment. The company had to adapt its structure to face the impacts of the economy on the business. The solution was to put its foot on the brake.

The measures included layoffs in places like São Paulo and Rio de Janeiro, representing 70% of the used car sales in Brazil, together with Belo Horizonte. “The macroeconomic situation has changed. The situation in Brazil has changed,” said Laughlin. “We had to adapt the route, make difficult decisions.”

The company laid off about 150 employees. Currently, it has 2,000.

However, nothing undermines Kavak’s CEO’s confidence in the definitive resumption of business. The bet to grow in the country is in differentials offered by the startup, such as a two-year car warranty, inspection of 240 items, and experience that can be 100% digital or hybrid.

Not to mention the possibility for the buyer to return the vehicle after seven days or 300 kilometers. “In Mexico and Argentina, for example, the warranty given to the cars is three months, and we sell extended protection of one year. We see the Brazilian consumer as more demanding and more sophisticated.

As part of the development process in the country, the company inaugurated Kavak City in Barueri, the metropolitan region of São Paulo City, a car reconditioning and processing complex with a capacity for 7,000 units.

The company maintains operations in cities in the greater São Paulo area – São Bernardo do Campo and Cotia, for example – and in the countryside – Campinas and Sorocaba.

In total, there are 25 showrooms distributed in the three main capitals of the Southeast region – São Paulo, Rio, and Minas Gerais. “In up to five years, we want to expand operations to Curitiba, Porto Alegre, and Brasília, strategically relevant markets. And then a next step would be the Northeast.”

The expansion of operations is conditioned to the consolidation of the business in the country, a process that, in Laughlin’s view, does not depend exclusively on the economic situation. It is also necessary to win the confidence of the Brazilian consumer.

The executive affirmed that, in Brazil, an owner usually exchanges the car every five or six years, an interval considered long. The reason? “Because he doesn’t want to go through the experience of buying and selling again. The person enters the negotiation with a stomach ache. It is a market the consumer does not trust, without many guarantees.”

The way out? “If we can bring advances and improve the consumer’s perception of the market, I believe we will increase the frequency with which they will change cars. It will only increase the opportunity size for everyone,” he said.

According to the Venezuelan, Kavak has exceeded its expectations because, in one year, it has reached important goals, such as developing the infrastructure, learning to buy in scale, besides building the proposal and the financing solution that, in the company’s case, has a penetration close to 50% in total sales, against “less than 30% of the market in Brazil”, he said.

“It is no longer having volatility in approval rates,” he said, who, optimistically, sees an interesting scenario until the end of 2023, regardless of elections and the World Cup. “We will look more at profitability to build a business that can be sustainable.”

Without making available the total amount of business done in the country since the beginning of operations, Kavak intends, kilometer by kilometer, to reach 20% market share in the country – the current share was not revealed.

“The used car market is very fragmented. Among the growth plans is the possibility of doing business with retailers, such as resellers and dealers. “If we see an opportunity to sell part of our inventory to retailers, we will do it. But our main focus is to buy from the final consumer and sell to the final consumer.”

With information from IstoÉ Dinheiro