As more and more car manufacturers modernize their vehicular technologies to meet the needs of consumers, those same consumers are altering the traditional auto market by taking their business to online used car companies as opposed to brick-and-mortar dealerships. Carvana, an online used car sales site, is hoping to single-handedly disrupt the car buying industry. That’s because many people would rather avoid the pressures of face-to-face negotiations with pushy salespeople.
Of course, Carvana has a steep hill to climb: not only do customers usually expect to test drive a vehicle before buying, but online car sales have often been dominated by scam artists.
In an email to The Street, Isaac Abraham, a mobility senior research analyst at Frost and Sullivan, said, “In the last five years, the shift to online [car] sales grew exponentially, driven by pricing benefits for both buyers and sellers, not to mention the warranties that were provided to incentivize the sale.”
And according to a report from Frost and Sullivan, annual online used car sales will reach 3 million by next year and are expected to hit 3.7 million by 2022.
Probably the biggest cause for the shift in consumer preference is convenience. With online dealerships, users can handle the entire car-buying process online from start to finish. As opposed to having to visit multiple dealerships to look at vehicles they like, users can view available vehicles for sale with the simple click of a mouse. This is a big time saver, since 39% of people are considering five or more different vehicles at the same time.
After they’ve selected a vehicle, Carvana gives users a choice in how they’d like to get to their vehicle. They can either pick up their vehicle at one of their parking garages in Nashville, Houston, Austin, San Antonio, and Atlanta, or, if they live outside those areas, Carvana will reimburse up to $200 for a one-way plane ticket.
If users don’t prefer either of those options, they can opt to have the car delivered to them for an additional fee. However, it may be more efficient to make the drive. Carvana users will surely be driving with excitement thinking about their new vehicle, but potential buyers should take heed — aggressive driving can lower gas mileage by 33% on the highway and 5% in the city.
While visiting dealerships in person might be a weeks-long process, Carvana claims that users can complete a purchase in under 15 minutes, including financing. Not only that, but the company claims that on average users save $1,461 per sale compared with Kelley Blue Book suggested retail prices.
Carvana is based in Phoenix and was incorporated in 2012. Even though technology IPOs have been floundering in recent years, the company filed an IPO at the end of March. An IPO allows shares of a private stock to be offered to the public. Shares of stock are similar to LLC ownership, which can be expressed by percentage or membership units. The company’s annual revenue, according to the filing, was $365 million in 2016, which is 180% higher than the previous year. The company also announced back in December that it had increased its number of available vehicles to 7,300.
However, like many young technology companies, actual profits are still a rarity for the company, whose losses have gained momentum each year since 2014. Over the past three years, the used car company has seen total losses of $145.1 million. Despite these losses, investors are betting that consumers are ready to take their car shopping online.
That’s certainly been true in other industries, as 66% of businesses have outsourced their IT needs in the past year. At the same time, industries as diverse as moving and dry cleaning have seen Uber-like peer-to-peer options released recently.
As for now, Carvana has a plan to boost its business. It’s bringing on two big names once it goes public: former AutoNation executive Michael Maroone and former vice president Dan Quayle. But one thing is for sure: as more consumers prefer to do business digitally, companies that want to stick around for the long haul have no choice but to follow suit.
