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.
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.