It’s a big claim and these two entrepreneurs are sticking to it. Fernando Pinheiro and Michael Muller started an online shop to sell your secondhand car – that they say will take you 30 minutes – after they got screwed over trying to sell their own.
“Mike and I both had really really bad experiences and that’s why we wanted to start this business,” says Pinheiro.
Hence CarZar was born. Their business model is simple; fill an online form which uses national data and CarZar’s very own algorithm to find a price. If you accept the price, CarZar sends over an inspector and 30 minutes later, you have cash in hand.
It all came the hard way.
“I was moving from Cape Town to Johannesburg on a new job. I tried to sell my car privately online to get a higher price,” says Muller.
“It was a BMW 3 series, a 1996 model – I called it White Lightning. It had at some point overheated badly, and according to my mechanic it had put strain on the whole cooling system. So every month or two one of those parts would break,” says Muller.
It took weeks of wheeling and dealing online until Muller was willing to meet a buyer for R25,000 ($1,800).
“We met outside in some car park in Milnerton, with a dicey pub and an internet café. When we got there, he offered me R5,000 ($360) less, which was 20% of the car value. I rejected the offer.”
At this point Muller was in a fix. He was leaving for Johannesburg the next day.
“I didn’t have more time to go and find more people. He was an ugly guy. He was rude to me and then he had offered to pay less than what we had agreed upon. I really didnt want to sell him my car. As I stood on the pavement watching this guy pull off, I flagged him down and said fine.”
“We walked into the cafe where we made the transfer. I watched him do it, and at the time I hoped he was doing it. You still never know. I had to take the risk. It was really ugly. But the transfer went through. It was the biggest transaction I had made in my life and it had been a complete failure.”
Pinheiro too had trouble getting anyone to buy his car. Having moved to South Africa from Brazil, he bought a secondhand Chevrolet from a dealer when he worked as an engineer consulting for firms Engevix and Passarelli.
“I remember the smile of the dealer who I bought the Chev from. His face lit up. Once I bought it I remember looking at it covered in dust and thinking I had paid a good price for it. But, when I tried to sell it, I visited eight dealerships and none of them wanted to touch it. One would maybe accept it as trade-in. I’m still driving it to this day,” says Pinheiro.
With their bad experiences fresh on their minds the two teamed up to look for ways around it online. Pinheiro looked back to Brazil.
“I saw the same business model being implemented in my country, Brazil. I knew one of the founders and it seemed to me like a very good idea,” says Pinheiro.
Muller, who had quit his corporate chartered accountant job at McKinsey & Company, in Johannesburg, and returned to Cape Town, was now designing a hotel app in the same building as Pinheiro. Pinheiro convinced Muller that cars and online sales were the better option.
“We did some basic market research. We noticed a huge space for innovation and space for improvement in trade in the auto trade industry. I needed a bigger pool of qualification which is where Michael came in,” says Pinheiro.
“South Africans are getting more used to online internet services to buy stuff. In our specific case, we noticed most of our traffic is coming the age between 18 and 35 years, which is quite expected. What we also want to achieve is those ages between 35 and 65 years old, normally unused to selling cars in different ways, those that don’t use the internet or don’t care.”
With a R3-million ($220,000) investment from Silvertree Internet Holdings, a tech startup company based in Cape Town, CarZar launched in April. It saw 6,000 inspections in just eight months.
“You need to sell the cars quickly so you don’t need such large amounts of capital. If you can turn over that car in three days then you can turn over the capital quicker,” says Muller.
“There is one group of customers who think this is a great product. Then there is another group that aren’t satisfied with the price. What people often forget, the dealer needs to recondition the car. Fix it up. In a private sale you don’t need that. Then the dealer needs to house this car on their floor and get someone to come and buy it.”
Their first hurdle was dealing with the dealers.
“When we started out we struggled to sell the cars. Car dealers are particularly nervous guys; it took a while to gain their confidence. When we first did the market research they tell you they are desperately short of cars. But then you take them a car and they look at it and say it’s not so great,” says Muller.
Their first experience selling a car was also a learning curve.
“We thought it looked nice, we had no idea what we were doing. It was a 2009 white Polo. The guy didn’t want to give us the documents of the car. Once we tried to sell the car to the dealers, we had a horrible surprise. We were actually trying to sell ‘lemons’ to the dealers. The car was totally f***ed,” says Pinheiro.
They call them lemons in the car industry – cars so bad they leave a sour taste in the mouth.
“After the dealers pointed it out to us it was clear. You can get a car that looks really neat and if there is structural damage it’s worthless,” says Muller.
“You can pay top-dollar price for a car that’s worth half of it,” says Pinheiro.
Other than cars that leave a sour taste, the two entrepreneurs also have the challenges of building an online business. They complain there aren’t enough qualified programmers.
“We’ve had job recruitment agencies looking for a year and we just can’t find guys. It’s been a real strain. We need web developers. It’s a huge gap. This will be a trend for the future and it could make South Africa a really power internet space if you get to the source and solve the lack of developers. There are a lot of entrepreneurs who want to do a lot of stuff, they even have access to capital but they can’t find the helpers,” says Muller.
“In the past when I was a kid normally would go to specialized English schools, after school. What’s happening in Brazil now is parents are sending their kids to learn how to code. These kids are 10 years old and it’s the future. Learning how to code is just as important as learning how to speak English,” says Pinheiro.
Experience talks. Tyre kickers and time wasters walk.