Uxin Limited (Nasdaq: UXIN), China’s largest used car e-commerce platform, recently announced a binding agreement with Golden Pacer, a leading financial technology platform owned by China’s 58 Finance. In exchange for USD100 million in cash and a specified allotment of Golden Pacer shares, Uxin plans to divest its loan-facilitation-related business to the firm.
Reducing risk in the used car business
Uxin’s Q1 report shows that its restricted cash reached more than RMB 2 billion. In the future, Uxin will no longer assume any financial responsibility nor risk for locally and nationally purchased loans, which greatly reduces the pressure of funds and helps it prioritize used-car transactions. Previously, to carry out its lending business, Uxin needed to assume 100% of the risk on all assets as well as pay a deposit to financial institutions. Beside, Fintech business models in China are under strict supervision by the government.
Over the past few years, Uxin’s used-car trading and loan-aid businesses developed rapidly, yet the required resources for each business are different. The trend of domestic used-car trading via online platforms is obvious, particularly when it comes to the standardization of display and the delivery of full-chain services. Integrating the lending business with 58 Finance will not only bring about maximum value on both sides; it will also allow the newly integrated company to remain an absolute leader in the industry, and thus take advantage of the opportunity to pursue better cooperation conditions with investors.
Enhanced focus on transactions
The transition to online platforms is an irreversible industry trend of domestic used car transactions. The rapid development of cross-regional transaction business launched in 2018 has reflected the trend, as well as the strength of used-car online transactions in general. According to Dai Kun, Founder, Chairman and CEO of Uxin, from the beginning of the transformation to 2C business, Uxin has been an e-commerce company positioned in the used car trade. Although the loan business is an important step for the company in achieving large-scale operations, its core value is still based on used-car transactions. Thus the divestiture of its lending business allows it to direct resources toward the development of its used car e-commerce business.
In fact, Uxin’s business model is very similar to Carvana, an American B2C used-car trading platform. Founded in 2012, Carvana was originally a subsidiary of DriveTime, the second-largest American used car retailer. It later spun off in 2014, and it now operates independently. Since, Carvana has been providing complete online trading services for used cars for the entire US market. The majority of Carvana’s revenue comes from its used-car online retail business, which has greater growth potential than its competitors.
Currently Uxin will focus on its core businesses. Since the fourth quarter of 2017, from the perspective of transaction volume and revenue, Uxin’s cross-regional transaction business has maintained rapid growth for five consecutive quarters. This is perhaps the most telling evidence of the success of the business model. According to Uxin’s latest financial report, 2019’s first-quarter revenue of 2C cross-regional business was RMB 284.3 million (USD 42.2 million), an increase of 54 times over the previous year. Also, a total of 78,277 vehicles were traded during Q1, equating to an increase of 39.6% YoY. In the future, as a minority shareholder of Golden Pacer, Uxin can continue to enjoy the growth of its automobile finance business in a healthier and more sustainable way.
In addition to Golden Pacer, Uxin has formed alliances with Taobao, Dongchedi and 58.com, enabling car dealers to solve pricing, quality testing, and other issues. Doing so has allowed the company to form a virtuous circle and build a robust supply chain system, one that goes hand-in-hand online and offline.
(Top photo from Pixabay)