Deal focus: Opportunity knocks in Japan's pricey auto space

Japan's Nyle is a local leader in search engine optimization, user experience consulting, and branded media outlets. Until two years ago, the company was best known for a portfolio of websites offering discovery and recommendation services for apps, games, manga comics, and dating.

But Dimension, the VC arm of local business builder Dream Incubator, didn't get interested until the 14-year-old start-up pivoted into cars. It has led a JPY5 billion ($48.3 million) round on the back of the Carmo vehicle leasing platform, which Nyle launched in 2018.

Dream Incubator has backed about 160 start-ups with balance sheet capital since 2000 but decided to branch into a fund structure as deal flow in the local ecosystem increased. Dimension was established in 2019 and raised JPY5 billion for its debut fund. Nyle represents its 14th investment.

Much of the strategy with Nyle is socioeconomic. Carmo claims to offer car leasing packages as cheap as JPY10,000 per month – compared to JPY60,000 for some competitors – at a time when car ownership in Japan is becoming increasingly anachronistic. Carmo has more than doubled its number of individual customers to 45,000 in the past year. Dimension estimates the broader Japan car leasing space is worth JPY40 billion and growing at 20% a year.

"Young people in Japan don't buy cars anymore. In the big cities like Tokyo, you don't need a car. In the rural areas, cars are a must-have, but owning one can be super expensive," explains Noriyuki Ito, an investor at Dimension.

"The amount of tax you have to pay is huge. You have to get a maintenance inspection check every year, which can be expensive. That's why a lot of people are gradually shifting from owing cars to leasing. We see this change in regional areas of Japan, especially among young Japanese."

Nyle does not own its own fleet of cars but effectively operates as a digital shopfront for Orix Auto Corporation. The partnership allows Nyle to offer a range of new and used vehicles for lease as well as a lease-to-own option.

Most of the fresh capital will be spent on marketing and the hiring of sales and call center staff. The focus on rural areas means advertising campaigns will veer largely toward traditional TV channels, but Nyle's internet savvy is expected to give Carmo the edge it needs as a newcomer to the massive Japanese auto space.

"The traditional carmakers are struggling to acquire new customers with subscription businesses because their monthly payments are too high and they're not experts in digital marketing," Ito says. "Like Nyle, the big car companies will also be marketing on TV, but the final acquisition point is online, where Nyle has an advantage. Nowadays, people watch TV while holding a smart phone – they see a commercial, and the next thing they know, they're sending inquiries to Nyle online."

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• Topics
• North Asia
• Expansion
• Technology
• Japan
• TMT
• automobiles