Best PracticesDealership MarketingDealership Operations & Processes

Acquiring cars in 2020 & beyond – WATCH OUT!

In the famous words of Bob Dylan, "The times, they are a-changing."

Remember the good old days when customers had two ways of selling their car? They could either take it down to their local dealer or turn to Craigslist. For consumers, they were making a tradeoff, make more money or save more time.

In those days it was good enough to give customers a range of what their car was worth online. It was OK to tell them they had to come to the dealership to get a price. You could even offer a lower, wholesale-driven price. Consumers we’re making the time vs money tradeoff.

Enter Carvana. They took the CarMax strategy, of buying your car even if you don’t buy one of theirs, to a new level. Instead of driving to a dealership, consumers get a price from the comfort of their home, all in about two minutes. And don’t bother getting up from the couch, Carvana will come to you to pick up the car. What about the price? Even if they offer the same amount as a local dealer, they win.

Why? Consumers love convenience. A fact that’s driving our new service-driven economy. We Uber to our destination. We Instacart our groceries. We Doordash our takeout. We TaskRabbit our chores. We Rover our dog. We Turo our rental car. We Prime our packages.

You get it. Convenience matters more today than ever. And the companies that deliver it are winning the hearts and minds of consumers.

But Carvana doesn’t have a monopoly on instant offers. Lithia has entered the scene.

Shift is in the space on the West Coast. Vroom is a major player and making big moves in the market.

Full disclosure: CarStory is powering half of these solutions today.

And then there’s CarMax. They are running some local tests and just made a significant investment in Edmunds. The speculation is that the investment will help with their instant offer strategy. Time will tell.

Show me the money

Why should dealers be taking note of this movement? Why change at all? It comes down to one reason: PROFITS.

While Carvana is still losing money, they know where to find margin. In a recent Seeking Alpha article, there are some great insights around the importance of selling consumer-acquired vs auction vehicles.

Carvana sees about $1,000 more front end gross on these cars. We also know that these vehicles sell faster compared to their auction counterparts. This fact explains their aggressive investment to acquire more. "In 3Q19, Carvana bought 32,000 cars from customers. Of all the retail units sold, over 30% were sourced from customers, up from 17% in the prior quarter." Compare this to the used car leader in the space, CarMax. Over 50% of their sales are from consumer vehicles.

Fishing for sellers

This begs the question, if these cars are a goldmine, why aren’t dealers buying more? We see two primary reasons. The first is the number of "at-bats." Dealers need more chances to make offers. The second reason is the price. With the changing landscape, dealers need to put better numbers, on the right vehicles, to win.

Let’s talk about at-bats. For this discussion, I’m going to assume that dealers are already maximizing the trade-in process, service lane opportunities and equity mining. If that’s the case where are dealers to turn?

As the saying goes, you have to fish where the fish are. Whether it’s a shopping or a research site, there is a good chance those consumers are looking to sell their car. If dealers can get into that conversation, they can drive up the number of consumer-sourced vehicles and in the process, drive up profits.

It’s why Carvana cut a deal with CarGurus and Credit Karma. It’s also why you should expect to see more news about these plays. And speaking of news, we just launched JD Power’s new Sell My Car service. Customers put in a VIN or a license plate and in a few minutes, get a real offer.

But this won’t be as easy as signing up for a subscription service or some advertising deal. There is a real technical hurdle to overcome first. If dealers want to get in the game, they need to be able to offer the customer a competitive, instant offer.

I believe part of the reason CarGurus is working with Carvana on their new instant offer pilot is that they are one of the few dealers (except the ones I mentioned above) that have the technical ability to integrate into their site.

But just having the ability to put an instant offer on a car isn’t enough. To compete and win, dealers need to give consumers a strong offer that still preserves their profits.

If you’re thinking to yourself, "this is impossible." You’re right. If you use old tools and old processes, they won’t get you there.

To see the results, I’m describing you need a new approach combined with new insights.

Complete and accurate details of the car

In a recent analysis of over 2,000 appraisals, CarStory found that 43% of the vehicles had valuation errors from incomplete or inaccurate data. The average impact per offer was $416!

These results shouldn’t be surprising. We know VIN decodes are incomplete. At CarStory, we rely on 15 years of history, computer vision of vehicle images and a whole bunch of analytics and AI to predict a car’s trim, transmission and options (the same technology powering Cars.com Autocorrected solution).

What a vehicle will sell for on your lot

The days of relying on simple market averages are over. To win more consumer trades and preserve margin, dealers have to predict the price every car will sell for on their lot.

Averages are a massive issue in the industry, and it’s leading to a lot of profit-loss. I did a presentation on this topic at Autovate. It’s a quick watch, and I’d encourage you to take a look.

Luckily, CarStory has you covered here as well. We pioneered the concept of dealer-specific predictions and are still the only company giving dealers these insights.

How long it will take your dealership to sell it.

The second prediction that drives valuations is days on lot. Again, dealers can’t rely on averages. They need to know if a car will fly off their lot in 20 days or languish for 70.

Once you know that answer, you can intelligently adjust the price you’ll pay. If it’s a slow seller, deduct your carrying costs. If it’s a fast seller, spend a bit more to win that vehicle.

What final adjustments are needed to price the car

What’s the condition of the vehicle? Was it smoked in? Does it have both keys? Do you want to bake in margin-based on the price of the car? What about the vehicle type? All of these questions drive the price. If you’re going to make instant offers, you need to apply these dealer-specific adjustments in real-time. But don’t worry – we have you covered with these as well.

Final thoughts

To be successful with instant offers, dealers need tools that understand their dealership in ways they could never imagine. For stores that embrace this new approach, there will be a line of customers waiting to sell their car.

Good luck out there!

If you’d like to talk more, feel free to reach out or comment below. We love talking about this space and sharing our learnings.

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Jeff Kershner

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This begs the question, if these cars are a goldmine, why aren't dealers buying more? We see two primary reasons. The first is the number of "at-bats." Dealers need more chances to make offers. The second reason is the price. With the changing landscape, dealers need to put better numbers, on the right vehicles, to win.
Reason 3 - Because they simply don't want to give a customer a number without seeing it in person. It's how they have been doing business for years and do not believe there's any advantages in changing up the process. If the vehicle is a trade, dealers still rely on the advantage of knowing if the customer physically shows up, they've increased their chances of closing the customer 2X.

From opportunity to success is easy to track. But what most dealers are not aware of are all the MISSED opportunities. Once a sales person is told to tell the customer "in order to place an accurate number for their vehicle, we would need to see it in person" so many times, they'll remember to say it the next 100+ without touching the desk. How many of these failed phone and showroom opportunities make their way into the CRM?

As Chad points out, dealers have more data at their exposure than ever before, yet many still rely mostly on antiquated ways to determine what they will pay for the vehicle. Resulting in little confidence UNLESS they can touch the car.

More times than not, when I've given a customer an actual price on their vehicle/trade over the phone or online (post website trade-in form,) I get the deal done. Many times because I was the only one that would give them an actual price. I made it easy and convenient for them, with a number of these customers coming from a distance away.

Dealers that don't soon figure this out are going to struggle.


FYI - we have @chad.bockius joining us on April 3rd for a RefreshFriday to discuss this topic. Be sure to join us.

If you have any questions for Chad, post them below.
 

Retail My Ride

Getting Refreshed
Feb 14, 2020
31
17
8
USA
First Name
Jim
In the famous words of Bob Dylan, "The times, they are a-changing."

Remember the good old days when customers had two ways of selling their car? They could either take it down to their local dealer or turn to Craigslist. For consumers, they were making a tradeoff, make more money or save more time.

In those days it was good enough to give customers a range of what their car was worth online. It was OK to tell them they had to come to the dealership to get a price. You could even offer a lower, wholesale-driven price. Consumers we're making the time vs money tradeoff.

Enter Carvana. They took the CarMax strategy, of buying your car even if you don't buy one of theirs, to a new level. Instead of driving to a dealership, consumers get a price from the comfort of their home, all in about two minutes. And don't bother getting up from the couch, Carvana will come to you to pick up the car. What about the price? Even if they offer the same amount as a local dealer, they win.

Why? Consumers love convenience. A fact that's driving our new service-driven economy. We Uber to our destination. We Instacart our groceries. We Doordash our takeout. We TaskRabbit our chores. We Rover our dog. We Turo our rental car. We Prime our packages.

You get it. Convenience matters more today than ever. And the companies that deliver it are winning the hearts and minds of consumers.

But Carvana doesn't have a monopoly on instant offers. Lithia has entered the scene.

Shift is in the space on the West Coast. Vroom is a major player and making big moves in the market.

Full disclosure: CarStory is powering half of these solutions today.

And then there's CarMax. They are running some local tests and just made a significant investment in Edmunds. The speculation is that the investment will help with their instant offer strategy. Time will tell.

Show me the money

Why should dealers be taking note of this movement? Why change at all? It comes down to one reason: PROFITS.

While Carvana is still losing money, they know where to find margin. In a recent Seeking Alpha article, there are some great insights around the importance of selling consumer-acquired vs auction vehicles.

Carvana sees about $1,000 more front end gross on these cars. We also know that these vehicles sell faster compared to their auction counterparts. This fact explains their aggressive investment to acquire more. "In 3Q19, Carvana bought 32,000 cars from customers. Of all the retail units sold, over 30% were sourced from customers, up from 17% in the prior quarter." Compare this to the used car leader in the space, CarMax. Over 50% of their sales are from consumer vehicles.

Fishing for sellers

This begs the question, if these cars are a goldmine, why aren't dealers buying more? We see two primary reasons. The first is the number of "at-bats." Dealers need more chances to make offers. The second reason is the price. With the changing landscape, dealers need to put better numbers, on the right vehicles, to win.

Let's talk about at-bats. For this discussion, I'm going to assume that dealers are already maximizing the trade-in process, service lane opportunities and equity mining. If that's the case where are dealers to turn?

As the saying goes, you have to fish where the fish are. Whether it's a shopping or a research site, there is a good chance those consumers are looking to sell their car. If dealers can get into that conversation, they can drive up the number of consumer-sourced vehicles and in the process, drive up profits.

It's why Carvana cut a deal with CarGurus and Credit Karma. It's also why you should expect to see more news about these plays. And speaking of news, we just launched JD Power's new Sell My Car service. Customers put in a VIN or a license plate and in a few minutes, get a real offer.

But this won't be as easy as signing up for a subscription service or some advertising deal. There is a real technical hurdle to overcome first. If dealers want to get in the game, they need to be able to offer the customer a competitive, instant offer.

I believe part of the reason CarGurus is working with Carvana on their new instant offer pilot is that they are one of the few dealers (except the ones I mentioned above) that have the technical ability to integrate into their site.

But just having the ability to put an instant offer on a car isn't enough. To compete and win, dealers need to give consumers a strong offer that still preserves their profits.

If you're thinking to yourself, "this is impossible." You're right. If you use old tools and old processes, they won't get you there.

To see the results, I'm describing you need a new approach combined with new insights.

Complete and accurate details of the car

In a recent analysis of over 2,000 appraisals, CarStory found that 43% of the vehicles had valuation errors from incomplete or inaccurate data. The average impact per offer was $416!

These results shouldn't be surprising. We know VIN decodes are incomplete. At CarStory, we rely on 15 years of history, computer vision of vehicle images and a whole bunch of analytics and AI to predict a car's trim, transmission and options (the same technology powering Cars.com Autocorrected solution).

What a vehicle will sell for on your lot

The days of relying on simple market averages are over. To win more consumer trades and preserve margin, dealers have to predict the price every car will sell for on their lot.

Averages are a massive issue in the industry, and it's leading to a lot of profit-loss. I did a presentation on this topic at Autovate. It's a quick watch, and I'd encourage you to take a look.

Luckily, CarStory has you covered here as well. We pioneered the concept of dealer-specific predictions and are still the only company giving dealers these insights.

How long it will take your dealership to sell it.

The second prediction that drives valuations is days on lot. Again, dealers can't rely on averages. They need to know if a car will fly off their lot in 20 days or languish for 70.

Once you know that answer, you can intelligently adjust the price you'll pay. If it's a slow seller, deduct your carrying costs. If it's a fast seller, spend a bit more to win that vehicle.

What final adjustments are needed to price the car

What's the condition of the vehicle? Was it smoked in? Does it have both keys? Do you want to bake in margin-based on the price of the car? What about the vehicle type? All of these questions drive the price. If you're going to make instant offers, you need to apply these dealer-specific adjustments in real-time. But don't worry - we have you covered with these as well.

Final thoughts

To be successful with instant offers, dealers need tools that understand their dealership in ways they could never imagine. For stores that embrace this new approach, there will be a line of customers waiting to sell their car.

Good luck out there!

If you'd like to talk more, feel free to reach out or comment below. We love talking about this space and sharing our learnings.
Chad. All valid points. But we come at inventory sourcing from a different angle. Dealers need to know about yours, ours and others to survive and thrive:

Sellers have Three options, not Two:

Many like yourself and others believe there are only two seller options. From there, you correctly point out how time and technology have made these two options "more convenient" for the seller. But, that is about all it gets the seller - convenience. Which means Carvana, CarMax, AutoNation, Lithia and the other "Goliaths" are putting lipstick on an old tired pig and saying, "Hey Mr. Seller, we've made it easier, faster and more convenient to low ball you out of your really nice car, so we can quickly get it ready to re-sell for thousands of dollars more on our high-tech, cost-effective, no-haggle pricing retail platform."

Don't get us wrong, its good to have choices and convenience - no single option is going to work best for all sellers - we firmly believe the more options, the better. But, the real truth (we are on a mission to scream it from the mountain tops) is there is a little-known (but growing), far more effective, smarter option for many sellers – it is called automotive retail consignment. Again, may not work for every seller based on their unique situation, vehicle, etc, but for most vehicles, it is the best of all worlds - seller gets top retail dollar for their car without the hassles and dangers of selling it privately online.

David vs Goliath:

Dealer Sourcing is now the big topic and challenge for many small-medium sized used dealers thanks to the Goliaths’ focus on dominating traditional inventory sourcing for the best cars to feed the growing beast. With their deep pockets, high retail margin model and scale, they've already pretty much taken over and "bullied" the smaller dealers at the auctions. We challenge you to take a survey of small-medium dealers and ask their opinion of the auction experience the past 3-4 years. The auctions themselves are doing an amazing job with technology, vertical integration, convenience, etc., but the prices on the best cars are too high and the buyer fees are insane thanks to the big guys. Now the Goliaths have moved on to crowd-out and dominate the next inventory source – private party cars. It is obvious from the barrage of TV ads, to the year-end Carvana statistics you quoted. And now we hear that Carvana is/was partnered with giant CarGurus to get first crack at private seller Instant Offers. Of course, Carmax and Autonation will have to counterstrike. So, dealers should expect to see the pillaging of private seller sourcing get worse, and realistically we don’t think dealers can win going head-to-head with the Goliaths. What the dealers need is to carve out sourcing areas where Goliaths aren’t paying attention.

What the used car inventory sourcing world is experiencing now is no different than the shifts we saw in the general retail sector from mom-and-pop stores to Walmart and now Amazon. Anyone shopped at a “mall” lately? Buckle-up Mr. "family owned and operated used car dealership.” Survival will come from innovating, getting creative, forming new alliances and trying new things. One of the growing trends is dealer inventory sourcing through non-traditional channels like, Consignment. We encourage you to visit www.Carlotz.com and learn about their story – In 2011, three Harvard business grads launched, “The Consignment Store for Cars” and they now own & operate 8 dealership locations (100% inventory sourced by consignment). With VC funding, they are aggressively expanding with more locations – ironically, some are calling them the Carmax of Consignment. They and the 2,413 other consignment dealers in 48 states that we have catalogued and listed at Retail My Ride are proving that consignment is a viable, profitable model and a deep, untapped inventory source (Approximately 14 million private party cars sold each year) Two of our favorite old sayings still holds true: "He who has the cars, wins the game," and "You don’t have to own it to sell it and make money.”

To come full circle with this discussion: The unique thing about consignment and what makes it a truly smarter option – is what we refer to as, the “Triple-Win” pricing strategy which is based on the underlying belief that all three parties (Seller, Buyer and Dealer) should emerge from the sale of each vehicle as winners – Seller gets more than traditional trade-in/instant cash offer, the Buyer gets a good deal from a motivated seller and the dealer earns good margins, less cost, and creates 2 happy, loyal customers.
 
Last edited:

ChrisR

Refresher
Oct 12, 2015
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Even touching the car can be tricky, had another manager bring a car in recently, drove it, and thought it was good to go. As soon as the paperwork was completed & we parked the trade, the leak stop the customer put in the radiator stopped working, and all the coolant leaked out of everywhere.

I'm just glad the person who put the trade number in it, fought the customer's desire for way more than it was worth.
 
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Retail My Ride

Getting Refreshed
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So very true and another great example of where retail consignment would be a better option for that dealer because the seller would be required to either fix it or take it out of the program. Same goes for maintenance items like brake pads, belts, hoses, tires, failed components etc.
 

ryan.leslie

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Bumping this thread...

A LinkedIn contact shared some stats from Carvana's Q4 '19 Earnings Call that I found interesting:
  • 6 consecutive years of triple-digit growth
  • 2019 104,000 vehicles bought from customers (up 231%)
  • 43% of inventory sold from customer purchases
  • $2,883 GPU - Opened 61 markets in 2019 (146 total)
The industry has picked on Carvana for "bleeding cash." We've done it here in a thread that may only be rivaled by Quinn's favorite, the QR Code thread that started in 2011 and won't die, but I don't think that the financial impact of this acquisition strategy should be ignored. I don't want to steal Chad's thunder for the upcoming Refresh Friday, but we know through partners that the units acquired from an individual bring greater gross profits. Acquiring from an individual also avoids auction fees and "getting some other dealer's problem."

Yesterday's solutions won't solve for today's challenges, and certainly not for tomorrow's problems. If you aren't thinking about evolving your acquisition strategy, I think it is worthy of your consideration.

I believe we are seeing "pricing transparency" evolve from simple "retail pricing transparency," to "complete pricing transparency." A lowball, back of wholesale book offer strategy is going to seem as silly to us in a year or two as the "call for price" non-pricing strategy seems to us today.
 

Retail My Ride

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Jim
They look great on that side of the ledger (Unit sales and Gross) but the one that matters is net profit. Investors are betting on Carvana to become the new norm and eventually capture biggest market share in worlds largest retail industry that is very fragmented. They are projecting GPU to jump up to $3400. That would be industry record high and significantly more than the highly successful leader Carmax.

Wonder if anyone has run the LTD loss numbers (hundreds of millions) and then figured out how many years of profit based on realistic GPU, units sold, etc it will take to get back to even money?

Other factor is, does anyone really think that Carmax isnt going to launch a huge counter attack on Carvana? Watch what happens to those positive ledger stats in 2020. Not going to keep hitting aggressive GPU. Anyone can sell cars at a loss.
 
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