Second hand, first place

After its acquisition by Cox Enterprises in 1968, Manheim embarked on a series of roll-up acquisitions to give it the leading position it holds today. The Manheim ecosystem has also grown vertically to incorporate all kinds of financing, recovery, repair and information sharing components.

China's used car market is experiencing this kind of evolution but in a highly condensed timeframe. As a result, Julian Cheng, managing director at Warburg Pincus, believes the country could end up with a behemoth even bigger than Manheim.

"With Manheim, Cox rolled up localized car auctions, parking lots if you will, over something like a 30-year period," he says. "China is doing this where you have the internet and mobile internet. All these different businesses - which are in themselves worth billions - could end up in the same company. In developed markets, everything developed in different ways. In China it is starting at the same point."

This was the rationale for Warburg Pincus participating alongside Tiger Global in a $260 million round of funding for Youxinpai, China's leading used car auction platform. The company was founded in 2011 by executives from listed online auto advertising business BitAuto, It has previously received investment from Legend Capital, Bertelsmann Asia Investments (BAI), DCM and Tencent Collaboration Fund.

A total of 5.2 million second-hand autos were traded in China last year but the market is expected to grow more than fivefold. Markets of this scale cannot survive on informal trading systems alone. Dealers need to move large volumes of vehicles and platforms such as Manheim or Youxinpai are the way to do it. Youxinpai started out as an online-only offering but now operates a hybrid model with six offline centers that allow for sight inspections and the provision of other services.

Warburg Pincus was impressed by the company's move into the offline space and by its efforts on mobile products. The new capital will be used to expand the physical network as well as for technology and service improvements. Youxinpai, which differs from other online trading platforms by virtue of its size and focus on the wholesale trading market, is ultimately seen as a likely IPO candidate.

Cheng says Youxinpai's scale and technology offering can be used to make car-trading more transparent, removing the inherent distrust that exists between buyer and seller. Perhaps just as significantly, these factors can also help Youxinpai consolidate its market position. "Excessive competition can be a problem in China, but this company has squashed the competition at an early stage," Cheng adds.

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• Topics
• Expansion
• Greater China
• Consumer
• Technology
• Warburg Pincus Asia
• Tiger Global Management
• Growth capital
• China
• Consumer
• automobiles
• TMT