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By Kyle Stock
(Bloomberg) — As much as anyone, New Yorkers understand
the urgent need for a corned-beef on rye, a bottle of tequila or
even a six-pack of dress socks. In this day and age, virtually
anything a city dweller could want can be summoned to the door,
post haste.
Including a used, royal blue Jaguar F-Type.
As of Thursday, Carvana has that one covered. The five-
year-old online marketplace just started selling and delivering
cars in the Big Apple, the 78th U.S. city in its budding digital
dealership. The first machines to ship will be packaged on
delivery trucks in oversized takeout bags, which makes for great
marketing (just picture all the soup-dumplings that could fit in
one of those.)
"We're presenting a new way to do something—the second-
biggest purchase in a person's life," said Carvana co-founder
Ryan Keeton. "It's just like Amazon—the best experience, the
best product, the best price."
The New York expansion won't upend the world of Manhattan
car-buyers or even Carvana investors, but it does represent a
tipping point in the $1 trillion business of buying and selling
cars in America. Armed with internet reviews and pricing
minutiae, consumers are finally opting en masse to negotiate and
buy their rides online, without ever kicking a tire or taking a
test drive.
Carvana, which went public in May 2017, claims to be the
fastest-growing car dealer in the country, period. In the second
quarter of this year, it was selling about 250 vehicles a day
and posting a profit of close to $2,200 per vehicle. It has
about 11,000 machines listed on its platform and roughly one in
five of its customers begin and close their car purchase on a
smartphone.
The startup offers pretty much everything a traditional car
dealer does, including financing and warranties, plus a seven-
day return window. This moment is, in essence, the company's de
facto test drive. The share of buyers that return a vehicle over
that period is in the mid single-digits, according to Keeton,
and of those who send it back, roughly half end up buying a
different Carvana car.
Carvana said its clear cost advantage over old-school
dealers is that it doesn't need slick showrooms or slippery
sales staff. Its New York operation comprises two warehouses
where it can fix, clean and photograph cars, with a few folks
ready with flat-beds to shuttle machines out to buyers on-
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demand, like a steady stream of two-ton pizzas.
"Our technology scales infinitely," Keeton explained. "And
our ability to grow and open these markets is capital-light."
Ironically, the shift to online marketplaces is being
catalyzed by those very old-school auto dealers. Carvana was
launched in 2012 by DriveTime Automotive Group, a privately
held, Phoenix-based consortium of traditional car stores.
Carvana isn't totally virtual—it still pairs up with dealers on
service contracts, leases garage space from DriveTime and pays
to use its two corporate jets. But for a traditional dealership
like DriveTime, Carvana is a digital skunkworks—a hedge on the
future.
A similar alliance was forged last week on the West Coast.
Lithia Motors, an Oregon-based chain of dealers with $10 billion
in annual revenue, led a $140 million investment round in Shift
Technologies, a digital car dealership focused on Los Angeles,
San Francisco and nearby Silicon Valley.
"It's about doing things however, wherever and whenever our
customers desire," Lithia CEO Bryan DeBoer said. "Many of the
consumers—especially Gen-Yers and millennials—are thinking: 'I
don't need to go to a dealer.'"
At the moment, some 82 percent of Lithia sales start with
an online inquiry. Still, only 5 percent of the company's
customers actually end up doing the entire transaction online.
The stake in Shift ought should change that quickly—the company
expects to collect roughly $145 million in revenue this year on
about 8,500 vehicles sold.
Shift CEO George Arison said Lithia was particularly keen
on his customer base. About 55 percent of Shift buyers are
millennials, a group considered averse to haggling and possibly
driving in general. "That's a unique space that any major auto
retailer would love," Arison said. "And Lithia is super at
logistics, real estate and inventory."
"In some ways: he said, "it's a near perfect strategic fit."
Not everyone is sure the new model will work. Mike Jackson,
CEO of Fort Lauderdale-based AutoNation, the biggest dealership
group in the country, managed to criticize Carvana while touting
his group's digital prowess, saying AutoNation generates 35
percent of its business online.
"If you want to talk about the Carvanas of the world,"
Jackson said, "you basically have a West Coast business model,
and an East Coast business model."
"East Coast is, you make money the old-fashioned way," he
said. "And you attract an investor who appreciates and admires
the fact that you can make money. Then you have the West Coast
model, which is phenomenal growth at any cost with a shareholder
who's willing to underwrite those losses, and to value the
growth without any consideration about profitability—because
every now and then, it all works out."
At the moment, both Shift and Carvana are relatively small.
In its short life as a public company, Carvana has yet to turn a
profit. Investors, however, have been impressed by its growth
and prospects—its shares have risen four-fold from their IPO
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price.
But most players in the massive and hugely fragmented used-car
game are pretty small. Just how fragmented is this patch?
CarMax, arguably the leader, sold only about 2 percent of all
the used-vehicles that moved in America last year. The Richmond,
Va.-based seller still requires that buyers show up at one of
its 188 stores to complete a purchase, though they can reserve a
car online or set up financing. In its securities filings,
CarMax nods at the future, noting that online-only car stores
could "materially impact" sales.
For drivers on Manhattan's Upper West Side, the closest
CarMax outlet is about 80 miles away in New Haven, Conn. Or they
can hoof it down to the cluster of new-car dealerships in Hell's
Kitchen. Though, as of this morning, takeout at these 11th
Avenue redoubts of shiny, expensive steel isn't the only option.
--With assistance from Craig Trudell.
To contact the author of this sto :
Kyle Stock in Skillman a
To contact the editor re
.
David Rovella at
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