#34 Autotrader CEO: Chinese Car Growth is "Mind-boggling"

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1:20Hello and welcome to Big Boss Interview. I'm Fliss Hanna and Sean Farrington is in the driving seat this week. Who have you been speaking to, Sean? Yeah, I've been chatting to the boss of the UK's biggest online car buying platform. It is, of course, AutoTrader. The chief executive there is Nathan Coe. There was lots to chat about changing worlds of car purchasing that there's been in recent weeks because of the increases in petrol and diesel prices. They've seen changes there, but just also over a broader length of time. He was very interested on the changes in particular of Chinese cars and the options that we have now to buy Chinese cars.

1:59It was very, very strong on the impact that has had on the UK market and where that might go next. We delved into where the world of AI might take the world of a company like Autotrader, how we engage with it. Back in the day, decades ago, it would have been flicking through a magazine that came out once a week. Fast forward to today and in the next decade, will there even be the website that we're chatting to or will it be through other means as well? Recently, AutoTrader has had to engage with the competition regulator because of some investigation that the regulator is pursuing into reviews, whether they're misleading, whether they're fake reviews, some questions about moderation of reviews and negative reviews for AutoTrader to have to have a look at as well.

2:45So we heard his response to that situation. There was lots to talk about, so let's get into it. Here is Nathan Coe, Chief Executive of AutoTrader. Nathan Coe, Chief Executive of AutoTrader. Thank you very much for your time. Thank you for joining us on Big Boss Interview. Thanks for having me, Sean. Only one place to start really this week at the moment, given the major moves that we've seen and major developments we've seen in the Middle East. And so I'd just quite like to explore a little bit what the last few weeks has meant for the car industry, for AutoTrader being a boss, an employer here in the UK, and where you have seen it maybe impact the business or further down the line you think it might impact the business?

3:30Yeah, in some ways it's easy to say Auto Trader as a UK business is somewhat insulated from something like the Iran war. I don't think that is the case at all. I think when it comes to the core business side of things, what's been very obvious and very real for people in the UK is that petrol prices have really spiked up. Funnily enough, you see on our platform the reaction to that very, very quickly. So electric vehicle inquiries looking to buy them, either new or used, have really spiked, like up 30 % on what they were the month before. So I think people are, and we've seen this at other times when petrol prices have spiked in the past, it does lead to a real surge of people kind of saying, you know, some of those that have been neutral about electric vehicles, thinking perhaps I really should start to look at this now because the total cost of ownership is better on an EV, but it comes along with all the, you know, some of the other gremlins around, you know, what about charging infrastructure?

4:29Do they catch on fire? All these things are no more true for electric vehicles than they are ICE vehicles. But I think people get nudged over when actually the money starts to make sense because if you just look at the headline price of an electric vehicle, you know, You could say anyone that's earning under£45 ,000 feels like they're out of that market. If the price of their petrol starts to go up, then actually that equation can start to shift a little bit. So we've definitely seen that, and quickly, really, really quickly. And with that, have you noticed an increase in actual orders as well?

5:02Well, we're kind of an intermediary, so we have 14 ,000 or so retailers on one side of the market. we've got 1.6 million buyers every single day that come to us on the other side and you've got manufacturers in the mix as well. So we don't always see the orders, but we will see the people reaching out, submitting inquiries, sometimes doing deals where they're getting part exchange quotes, applying for finance. So we see part of the transaction, but not the very final bit. But I imagine there will be no question that the transaction volumes will follow through. And I I mean, we even saw in March in new car sales, if you take electric vehicles plus those hybrid vehicles, which aren't pure battery driven, they were over 50 % of new car sales in March this year.

5:48So, you know, that is coming because it's government regulation that, you know, there just will be more new electric vehicles. There just will be, therefore, more electric used vehicles as well. Does this latest sort of bump that people will have seen in the petrol and diesel cost, Does it feel any different to previous ones, maybe because there have been previous ones? In some ways, yes. Like the spike was very immediate and very, very pronounced. And we saw that at previous times. I think what's a bit different now is actually the way people talk about electric vehicles, the charging infrastructure, the range of the vehicles, the choice of the vehicles, because you've got loads of Chinese manufacturers that are starting to sell very, very serious volumes of new cars at price points.

6:32and with finance that is very, very affordable for people, much more affordable than electric vehicles two years ago. So I think those two things are kind of coming together at exactly the same time, and that is quite different. There's a lot more affordable options for people than there were in previous spikes that we've seen. Does this war that we've seen have an impact on the supply chain around it, the supply of vehicles and the ability to get those deals done? And again, I know you're an intermediary, but there'd be knock-on effects? I think it's a little bit unclear just at the minute as to how it will affect.

7:06Certainly during COVID, we saw massive impacts because manufacturers had to close their factories down because people needed to socially isolate. So that led to a lot less new cars being produced, probably 40 % less new cars being produced than what there was. It's a little bit unclear yet as to how the supply chain might be impacted because it does seem quite isolated to an area that's very, very focused on fuel and agricultural products. That being said, I wouldn't be surprised. These things do have knock-on impacts. That's the nature of supply chain. So whilst there might not be as many direct parts coming from that part of the world, actually sometimes the impact, the raw materials they use to produce the parts, those things can be impacted as well.

7:52But it's a little bit too early for us to say, and I'm not sure we've got a forecast as to exactly how that might play out. And given the levels of demand, perhaps, you know, even though at the point at which we're talking, the oil prices has fallen a fair bit, but it's still a lot higher than it was. And we don't know how long that will be for. But if there is elevated increase in electric vehicles with the petrol and diesel prices is at the moment, can the market keep up with that demand? Yeah, I think it can, if I'm really, really honest. When it comes to the people buying used cars, because you've got to remember in this country, most people buy used vehicles.

8:33So if 10 million people that buy a car, eight will be buying a new used vehicle and about two will be buying new. So when it comes to used, you can't really produce more used cars. It's a matter of history. So they'll tend to, the price is the thing that will move. They might become a bit more expensive if they really come into demand. Now, that market's been super, super healthy for quite a long time. People are really comfortable. So healthy means demand is good, the supply is there, those two things balance each other out and the prices are kind of steady. When that market's not great, you could argue this is great for consumers, is if supply is really high, if demand's a bit lower, just as per any economic market, you can see prices fall.

9:18And for retailers, people selling those cars, that is not a healthy market because they begin to lose money on those cars they start to shy away from them so that's been very good on the new side actually we could use some impetus because if you certainly look at a lot of the traditional manufacturers that have served this country for years and years and years you think of many of the german brands they have been finding it really really difficult to to sell those evs profitably and are feeling challenged and then they've got on top of that a government mandate to sell you know only electric vehicles beyond 2035 and this year their target is to sell a third of their cars as evs and they're not necessarily making that much profit on those vehicles at the moment so a little bit of impetus arguably lower interest rates which i didn't really mention earlier um that affects car buying quite a lot because most cars or a lot of cars particularly new are all bought on finance as well so actually that could be a bit of a help.

10:15We can definitely keep up with it. The industry could use it. Something else you mentioned with car sales was the notable increase in the Chinese cars. And this is something Autotrader has talked about before, predicting it coming. I mean, you have the data coming through, seeing this. Is this happening at the rate which you expected? No, much, much quicker. Much, much quicker. I think it is mind boggling, if I'm really honest. If you think many of these brands that have entered the market, you take someone like a BYD, which has probably got the greatest share at the moment of many of the Chinese producers.

10:52They sell electric vehicles, but they also sell a lot of hybrid products. They've achieved in a year what probably took a company like Tesla six to seven years to achieve. I mean, the graphs are really, really steep. You've got a point now where many of them in the last few months are upselling 5 % of the new cars, 6 % of the new cars in the UK. That's equivalent with many of the brands that you grew up with and knew and loved. And they've done it really, really quickly because their price points, an electric vehicle is a bit easier to build in some way. Most of the cost is in the battery. Chinese government made a big point of investing in batteries.

11:34So it's quite cost effective for them. And actually the British public, what we thought might happen is the British public love their cars. I've come to love my cars being in the UK now for 18 years as well. We thought they'd have greater attachment to brands than what they've shown. And actually, when you look at what people think about when it comes to an electric vehicle versus what they think about when it comes to an ICE vehicle, the brands are totally different. If you think of it as a bubble chart, the bubble charts are really big on brands like MG, Omoda, Jaycoo, BYD. On the other side, they don't even appear.

12:10It's BMW, it's Audi, it's Volkswagen, it's Vauxhall and many of those brands. Explain your bubble chart there. So what have we got on both sides? Think of it as a person's brain and how they're thinking about their new car purchase and what's kind of at the front. No one's thinking about, I'm only going to buy a VW. they tend to have, you know, their brain is made up of, well, maybe I'm going to think a lot about VW because I'm currently driving one, but I'd also consider a BMW and an Audi potentially. Think of that on one side when it comes to ice. When you look at that brain and it comes to an engine.

12:43A combustion, sorry. No, no, it's all right. I broke the lingo. No, we're all involved in this lingo these days. Yeah. So petrol vehicles, when you then take the brain of a person thinking about an electric vehicle, which might actually be the exact same person, those big bubbles are new brands like I've seen an MG, I've seen this Jaycoo product and a motor product. That brand loyalty that you used to have has kind of fractured a little bit when it comes to this totally new product. Even though it's still a car it is quite different and your choices are quite different. What are the consequences of that for the car industry?

13:18Well I think if you speak to the industry. A lot of the cars that we sell in the UK new do come from overseas countries. You know, we've seen the rise of the German brands over the last 10 years. In that sense, it's, you know, a shift from one manufacturer potentially to another. Now, those manufacturers are still very much committed to the UK market. It's the second biggest in Europe and a very, very profitable market for them. So they're not walking away anytime soon. I think when it comes to manufacturing in this country, which includes cars that we manufacture to export out, I think it does start to make it a little more challenging because these electric vehicles, as I mentioned earlier, the battery is like a big, big part, you know, a third to half the cost of the vehicle.

14:06And you really need those being produced locally. You need the R &D locally. You want to be supporting that industry so you're really good at building highly efficient batteries that can give a good range to the vehicle. And I think you have seen that's putting pressure on manufacturing in this country because a lot of that manufacturing was dedicated to some of the petrol and diesel vehicles. Do you think those traditional car companies, whether manufactured here or around Europe, can compete with those Chinese brands that have captured our imagination in a very different way? Yeah, I think the answer is yes, whether every single one of them would be able to, but these are some of the strongest brands in the world that you're talking about.

14:49They build cars that people find really attractive with good technology in them. They're well engineered. They've got safety records that make people comfortable. So at the moment, they are competing reasonably effectively. What they need to do, though, is they were always competing with petrol and diesel vehicles that, let's say, might have cost on average£30 ,000 or£25 ,000. Their electric equivalents are very often£35 ,000. That's the problem. They need to be able to get that cost back down to around where their petrol and diesel equivalents were. If they do that, I think they'll be able to compete quite effectively.

15:26But that's a lot easier said than done. And I can't pretend to say that I know how to run a factory or get the cost of an electric vehicle down by that sort of quantum. But that's really the thing that they've got to come to terms with. And they'll be able to do it as their factories ramp up and move away from petrol to diesel to start to produce a lot more electric vehicles. That tends to make the equation work a little bit better. And then it is back to getting the battery cost to work. And on this trajectory, what proportion of cars on our roads would you expect to be Chinese cars in a year or five years?

16:00Yeah, it's still a relatively small percentage, actually. So if we said, you know, those manufacturers might account for 15 to 20 percent of new cars this year, maybe even a little bit more than that. That's on two million sales. That's 500 ,000 cars that's going in this year. there are 35 million cars on UK roads so it takes quite a long time for the they'll account for a big percentage of the new car sales potentially over time but for that to feed into the 35 million cars that are on our roads today which you know range from one year old through to 20 years old those changes tend to take a bit longer same is true of electric vehicles generally actually versus petrol and diesel there will be petrol and diesel cars around for a really really long time because you can't replace 35 million vehicles that quickly.

16:54Just while we're on electric vehicles, generally subsidies that were announced last year, then we got around the budget, the announcement that electric vehicle drivers will start effectively paying a road tax in a few years' time, VAT questions around charging and the like. Does it feel to you like there's a cohesive strategy for electric vehicles in the UK? I think it's hard to say there is, if I'm really honest. I think there's definitely regulation that says we want to get to selling only new electric vehicles, zero emission vehicles by 2035. So that bit's really, really clear. What's been difficult is the support for people to get there has really been or the obligation or responsibility to get there has really been pushed on to the people that manufacture those vehicles.

17:46Now, you might say fair enough, but I think there's an assumption there that these vehicles are profitable and really commercial for them to be able to sell. And at the moment, that's a little bit challenging because they've not necessarily had time to get down the cost curve. So from a new vehicle perspective, I think, and even maybe a used vehicle perspective, if we want to get to those sorts of targets, if we want to get to a fleet of vehicles on UK roads that are less impactful on the environment and transport accounts for a quarter of carbon emissions, then there probably needs to be more support around buying the vehicles, more support around investing in infrastructure.

18:24and those things have kind of chopped and changed a little bit. The support's been there and then it's been slowly withdrawn. We're not really at a time where that support should be withdrawn at the moment because the target numbers are actually cranking up over time, not getting easier. And how does that tally the cost of vehicles with what you said before about European manufacturers liking the UK because it's a profitable market? Yeah. Yeah, I mean, it might sound like the scope there for some of these pressures on manufacturers because it's more profitable to sell a car here than in other parts of their market.

19:02Yeah, although at the same time, they're not having the same pressure put on them by other European markets to get that mix right. In the UK, just to give you an example, and this will make it very easy for you to understand, And if they don't sell, say, 33 % of cars as being electric vehicles this year, for every car that they sell over it, they might need to pay a fine of up to£15 ,000. That pretty much makes that car not profitable to sell. They can also, it's 33 % of cars are electric, they're still also able to sell a lot of petrol and diesel vehicles, which are profitable for them. And it is worth saying they're also a lot, lot better for the environment than petrol and diesel vehicles last year, the year before that, the year before that, and certainly 10 years before.

19:50I just want to move on to another aspect of your business that has got headlines in recent weeks about the reviews part of it. So there's been a Competition and Markets Authority announcement that they've launched an investigation into five companies about the reviews that are on those companies' website into, as they put it, fake and misleading online reviews. And one of those companies is Autotrader. And actually another of the companies is the business that Autotrader use, FIFO, to be able to manage some of these reviews. So just firstly, your response to the situation. You've got the Competition and Markets Authority investigating you for reviews now.

20:33Yeah, so as you will understand, that's a hard one to really talk a great deal about. And that's because we haven't really, other than we've worked with the CMA before, we've worked with them around online content and reviews. It is obviously news to us in some sense. We really need to engage with them and understand what they're looking at. I mean, if you look at the letter and what they've said, it's different for each of those companies. In Auto Traders' case, it talks about how reviews are moderated. As you said, we outsource that to FIFO. But there's a question as to if a review is moderated or not accepted, you know, how do you treat that review when it comes to the online calculation of it?

21:16So we really need to dig into it and understand a little bit better. What I would say is as a business, if you came and walked the halls of Autotrader, not that we have halls because it's all open plan, but if you came and walked around, we take ethics, integrity, doing things in the right way really, really serious. And that will always be true. It's always been true as well. But really it's something that we've just got to engage in and understand it better. Has that engaging happened? Is there constant dialogue with the regulator right now, given the big headlines that come out of an announcement like that?

21:50Yeah, I mean, as soon as that announcement comes out, then a process does get started and that process has started. But it's nothing really that I'd be able to comment on at the moment, just because, you know, we need to really understand where they're coming from and what they want to understand and what data that they need. And then at some point we'll be able to comment on it. historically then, just almost before this investigation, it's something you decide to outsource, the management of those reviews. Why would you do that? Because a lot of people would see Autotrader. I mean, I know it's associated with the magazine going back decades, but it's a tech, digital, online company.

22:25Why not manage that stuff yourself? Partly because we're a tech, digital and online company, what we're really, really good at is software engineering, building big systems that scale a lot. When it comes to managing reviews, That is a bit of a job in itself. It is about dealing very often with consumers manually, backwards and forwards, accepting reviews, asking for them to be changed. We took the view that actually, as the person publishing the reviews, we would take greater comfort in knowing that there are experts in that business, just like we're experts in running technology and having a big brand, better to work with someone that can make sure that that is independent, it's dealt with.

23:05we're not in any conflicted situation between our customers or our consumers and they're experts in that space. So that's the decision really. Do you think you might reassess that? I think it's just too early to comment on all of that stuff, to be honest. I mean, I think there will be people. There is more and more. The Competition Markets Authority, it's nothing to do with competition. They've had their powers expanded now into the online space and reviews particularly. I think you really need to see, well, how does that actually play out and what does that mean for how we manage reviews. As I said, we'll come back to a really simple thing.

23:39What is the right thing to do for people that are buying cars and people that are reading those reviews and what's fair to our car readers? The concept of, and if people have a glance at Trustpilot or whatever, you can always find some of this stuff, but you can see that there's occasional pockets of frustration that a review that people have put down for a dealership somewhere hadn't made it through. The concept of, oh, a bad review not making it through to the place where people feel it should sit, it's not where we should be, is it? I think, again, it is really hard to talk a lot around this one because we need to give the CMA the chance to talk about what are the things that they've got concerns about and how we might, do we need to change something.

24:32When it comes to moderation, and I can only talk for Autotrader, it's a relatively small number of things where a review might end up being moderated. It'll be things like use of profanity, use of someone's name, use of personally identifiable data. There are some things that you simply, it would not be right to publish on the internet. The question is, well, and, you know, do you go back to the consumer and say, okay, we haven't accepted it. Do you want to re-review, which is something that we do. But again, it is super hard to comment too much on it. And broaden it out a little bit, talking about the technology advances, artificial intelligence, and, you know, it plays into the customer's desire for truth.

25:13That sounds a bit more sort of highfalutin than it needs to be. But people are questioning a lot of things these days. Does it make it harder, this environment that Autotrader are in, to make sure that people are trusting what they're reading is based on a very true experience? I think, no, I don't think it's making it harder if I'm really honest. I think partly down to the culture point that I made where we're really committed to doing the right thing as a business. but if you couple that with some of the new technology that we've now got, I think we're even better placed than we've ever been to be able to give people that truth.

25:55We're always independent. Right at the start, I talked about the fact that we've got 14 ,000 customers that are selling cars on one side. We've got 1.6 million people coming to look at them every single day. And we sit in the middle. Now, if we want to run a business well and that marketplace really, really well, you need to be balancing both sides of those. At the end of the day, we need the car buyers because if the car buyers aren't there, then the people selling those cars aren't going to be there. So we have a very natural incentive to give people an independent view, a rich view, and to pour as much engineering as we possibly can, which we do in this country, in just cars.

26:32In the UK, we have about 400 people in our product and technology organisation that all they do is try and answer that question that you've asked there. And now we've got tools like large language models. We've got AI, we've got machine learning. So we can tell you what your car's worth. We can tell you what the car that you're buying. There's a little price flag that will tell you, is this overpriced, underpriced? That's all completely spec adjusted based on data that we've got from the factory when it was built. Actually, technology has always been an enabler to our business. When I first came, 60 % of the business was selling magazines.

27:13Now, the trust that we could give you was about this big. Now there's probably... You're making a very small sign there. A very small sign for an ad in a magazine. That's exactly right. Now, actually, you're getting rich, artificially intelligence-driven valuations. There's probably six pages of information that you're getting on every single vehicle. There's up to 100 images rather than the postage size stamp. So I have always seen technology and still see technology is probably that is the thing that can help us do a better job. I have sort of an image in my head of tech bosses, including yourself, having to sort of form a line in front of investors, trying to make the case that AI is actually really good for their business and isn't going to just swallow it up.