A New Way to Buy Used Cars, Part 1
Robert Menard,
Certified Purchasing Professional,
Certified Professional Purchasing Consultant, Certified Green Purchasing Professional, Certified Professional Purchasing Manager
Editor’s Note: this is the first of a two part series on a new way to buy used cars. Part 1 explains the business model and Part 2 proves how the essential business practices still apply.
Have you heard of Carvana? Neither had I until a recent story about a three year old startup company from Arizona that maintains a facility in Blue Mound, TX, a small town of the periphery of the Dallas/Ft. Worth metroplex caught my eye. Carvana sells only used cars (all states require that new cars be sold through dealership networks although Tesla is challenging these laws). Carvana is partially owned by DriveTime, a company also engaged in selling used cars online.
Carvana’s business model is a twist on internet marketing and sales. They acquire used cars, usually at auctions, but also via trade-ins. This piqued my interest so I dug further to find Vroom.com , a competitor in which legendary NFL Quarterback John Elway is an investor. Both businesses proclaim a “haggle free” experience, a prospect that appeals to many used car buyers. In Carvana’s debut year of 2013, sales totaled $15 million. In 2014, sales jumped to $45 million. They are expecting a doubling of revenues in 2015.
How does the process work?
For most customers, buying used cars is an unpleasant experience. It is safe to say that used car dealerships in general and used car salesmen in particular suffer from an image and trust problem. Carvana and Vroom business models aim squarely at easing these discomforts and therefore appeals to the disenchanted dealership buyers. Carvana delivers vehicles to customers, often picking up their cars in trade. Further, a 7-Day “Test Own” guaranty allows buyers to return the car if they are not satisfied.
Carvana concentrates on late model used vehicles, 2006 at the oldest, with most stock being 2010 vintage or newer. Prospective customers search online, similar to other online auto sellers. It claims a 150 point process in preparing its used cars, not much different from almost all other existing used car dealer programs. They will also finance your purchase – more on that in Part 2.
What is different?
Carvana claims that all known flaws are disclosed, and that no vehicles involved in accidents are bought or sold by them. One distinguishing difference is the multiple photographs of the reconditioned vehicle which allows prospects to click on the car parts to open doors, for instance.
The seven day money-back guarantee feature is also a distinction. Carvana also delivers the vehicle to the buyer and calls on the sixth day to ensure customer satisfaction.
Carvana says that its online presence saves “15-20 hours of labor at a dealership… or about $1,200 to $1,700 in labor and another $250 to $650 in building associated costs.” Who has no doubts as to the integrity of these cost claims? However, it is indisputable that today’s car buyers research the internet before visiting the dealership for the test drive.
What is not different?
A few years back, I wrote an online course about “How to Buy a New or Used Car and Save Thousands”. Three underlying principles still apply: auto loans, personal credit, and negotiation skill.
More on these essentials next week.