The Amazon of Used Cars: Purchase Your Next Set of Wheels From a Vending Machine
Buying a new car: what a HASSLE. You spend hours upon hours in multiple dealerships waiting, providing information, test driving, negotiating, struggling with the purchase. Even with all the friction in the process, there have been no new steps taken to make the experience more convenient and easy for consumers…until now! Say Hello to Carvana, the proclaimed “Amazon of used cars”, a startup that is disrupting the automotive industry by allowing customers to inspect, purchase, and pick up used cars from glass tower vending machines spread across the US. These 8 story high automotive marvels came into creation when Carvana CEO, Ernie III, decided to bring a Silicon Valley swagger and convenience to the car dealership business, boasting his customers can now buy vehicles “in as little as 10 minutes.” Customers who browse the 7,000-plus vehicle inventory can have cars delivered to their homes, with a seven-day money back guarantee or they can travel to a Carvana used-car vending machine, insert a giant coin, and have their vehicles pop out a bay door. One year after its 2015 launch, Carvana was already rated as the fifth most promising company in America by Forbes. Although the concept of a car vending machine might sound intimidating, what Carvana is really doing is making the process of buying a car easier and more convenient. Their website is intuitively simple and because the whole process is digital, there is no friction between the customer experience online and in the showroom.
“There is a new Silicon Valley swagger and convenience in the car dealership business, “customers can now buy vehicles in as little as 10 minutes.”
Carvana is just getting started with its goal of building a large distribution network to deliver used vehicles to customers around the country who can buy, finance and obtain warranties on its website. The company adds additional value by lowering interest rates and eliminating the cost of dealerships fees, enabling the aggressively expanding industry innovator to deliver used vehicles for hundreds or even thousands of dollars below the recommended Kelley Blue Book prices. To achieve their goal of spreading vending machine locations called “markets” countrywide to create an established distribution network, capital spending has remained at a critical level. After raising $460 million in capital, the aggressively expanding industry innovator went public last April at $15 a share, flooding the company’s coffers with billions of dollars that it poured into its expansion strategy of spreading its brick & mortar vending machine retail locations across the states.
Is being first the same thing as being wrong?
Carvana CEO Garcia said that the company’s rapid growth has made for “imperfect guidance predictions” since it is paired with a small amount of operating history. However, this uncertainty has not stopped their growth with 23 new location being built in 2017 alone, bringing the market total to 44. Carvana has already opened 10 new markets in 2018, bringing its new total to 54 as of March 6 and it plans on opening another 20 to 30 more this year alone. Thanks to this hyper-expansion, Carvana’s customer acquisition costs are falling as their reliance on advertising is reduced, lowering their overall operating expenses. Carvana is still spending cash zealously to incentivize customers to buy cars like giving $200 for those wishing to fly to a city with a Carvana vending machine and inspect a car before purchasing it. Sale strategies like this have put Carvana on track to do between 89,000 to 93,000 in retail unit sales with revenues between $1.72 and $1.82 billion, up 110% from 2017. Carvana has ample room to continue its market expansion, pushing for a U.S. population coverage of 55% in the near future. It’s inevitable that Carvana’s top-line growth will slow as it spends to make, but investors can still expect triple-digit unit & revenue growth throughout 2018.
Who said burning cash was a bad thing!
This Untold Business Story goes to show yet again that convenience is the name of the game across industries. Carvana and companies like it, including Amazon, have not only changed the way we think about shopping for a car, but shopping in general. The modern shopper’s expectation of convenience is continuously evolving, forcing long-established business models like dealerships to adapt or…die. Will they sink as other disruptors enter the market or will they learn to swim at the same pace, only time will tell. Until then if you’re interested in a unique car shopping experience to find your next set of wheels, check out Carvana.com. Happy car shopping!
May 22, 2018| By Chaz Hermanowski – Untold Business Writer