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Welcome to NCM's Up to Speed Blog

How Carvana is Changing Used Vehicle Sales

Ben-Weiler_1
Written By: Ben Weiler
Posted on May 02, 2019

When it comes to gaining a competitive advantage over your marketplace, it is critical to know not only your own strengths and weaknesses but those of the competition as well. This idea is not anything new: back in the 5th Century BC, Sun Tzu wrote in the Art of War, “If you know the enemy and know yourself, you need not fear the result of a hundred battles.” Many businesses fail to heed this advice and continue to believe that their strengths will never be challenged. This can be a fatal strategic flaw and may ultimately cost you.

Many dealers have heard the call and are starting to take note of the changes happening to the used vehicle department. In a recent Automotive News article, Rick Ricart (President of Ricart Automotive Group) stated, “Dealers who aren't treating used cars like their own franchise are doing a major disservice to themselves. If you're not sourcing cars yourself, if you're not scaling and growing your used-car operation, I feel like you're going to be left in the dust.”

In today’s automotive landscape, it’s clear that traditional dealers will increasingly have nontraditional competition, and the fastest growing competition to the used vehicle department right now is Carvana (Ranked #8 on used vehicle retail sales).

Background

Carvana was founded in 2012 and offers its customers a completely online used car purchasing experience. The user can do everything from find a car, secure financing, trade in their old vehicle, and have their new car delivered to their doorstep all from the comfort of their couch. For this article, I have interviewed a recent Carvana customer (let’s call her Jill, a wife and busy mother of 2), have taken a deep dive into the Carvana purchasing experience, and after compiling and analyzing all this information, I will share my thoughts on the strengths and weaknesses of the current platform. I will also provide you with some key recommendations on how you can learn from the success of this online automotive retailer, who’s stated goal is to reach 2 million annual sales.

Strengths of Carvana

#1: User Friendly: The most obvious reason that someone would want to work with Carvana is the ease of entry. Their user-friendly approach is obvious throughout the website, as you are not overwhelmed with information until you want to learn more. The best example of this is their home page, where—with a single click of the mouse—you can see every model available for sale. From here, I have easy access to additional filters to help me narrow down my choices, and in less than 10 seconds, I am searching through a customized used car inventory. This sentiment was reiterated by Jill, our real-world Carvana customer:

“The website is pretty user friendly. You are able to narrow the choices by make or model, filters get pretty detailed down to leather seats, remote start, or even color.”

#2: Quality Photos: Carvana is an extremely visual platform, and their use of photos is a key element to helping them sell cars. Each car is photographed in 360 degrees, in three different variations (an exterior, an exterior with all open doors/hood/trunks, and an interior). There is no portion of the vehicle that is not available for the user to see. They even highlight flaws on the vehicle, as well as selling points, in great detail. While highlighting small scratches/dings may seem like a crazy idea, it really helps Carvana establish trust with the user. The customer knows exactly what they are getting up front and doesn’t feel like they will receive a car that is drastically different from the one they saw online. It also helps Carvana cut costs on unnecessary recon, adding a bit more to their profit margin with each deal.

#3: Customized Financing: Financing with dealerships is often what users dread the most about the car buying experience. It is because of this negative connotation that Carvana is using financing to their advantage. Their “Build My Deal” tool allows users to customize their financing based on their limitations. After selecting their income and approximate credit score, users can then customize their down payment, monthly payment, and terms. By setting limits for their down payment or capping their monthly payment to something they feel is comfortable, users can get financing that matches their expectations and eases them into making that final purchase.

“I particularly liked knowing the exact finance options up front,” Jill mentions. “Being able to immediately see how adding a little to my down payment would affect me monthly was a huge help. A lot of times, at a dealership, there's so much back and forth with the finance department if you don't walk in with your own financing.”

#4: Saving Time: One of the more highlighted selling points of Carvana is that they want to save their customers time. They accomplish this by allowing users to research cars, consider financing options, check vehicle history reports, research consumer reports on each vehicle, at any time of day and from any location. Time is something that everyone feels they are in short supply of, especially if there are children involved in your life. Spending half a day at a dealership finding a car can feel overwhelming, and the idea of having your car delivered to your home on your schedule is very appealing. This factor was definitely part of Jill’s purchasing decision:

“I liked the idea of not having to physically go anywhere. I have a full-time job and kids so sometimes actually getting some time to visit a business during their business hours is difficult.”

#5: Longer Test Drives: After a car is delivered to your home, you have seven days and 400 miles to decide if this is the perfect car for you. If not, you can return and exchange the car within those seven days without any issues. This allows customers to really get a feel for a car and to ensure that it is well-suited to their daily lives. Situations like the ease of pulling into the garage or learning the cargo capacity for groceries and equipment for after-school activities, are things that simply can’t be accomplished during a 10-minute test drive around the block. Again, this instills confidence in the user. It assures them that they have made the right choice and gives them an option to change their mind.

Whether you like it or not, these are the tools Carvana is using to cut into traditional dealership profits. They are attempting to establish themselves as the easy-going, user-friendly, no-hassle, stress-free car dealer while simultaneously painting all traditional dealerships as outdated, inefficient, and untrustworthy salesmen. However, Carvana does not have it all.

There are still plenty of things that dealerships are doing better than the online giant. But, we will be covering that in part 2 next week.


Do you have a question about your used vehicle department you would like answered? Leave us a comment down below!

For some additional reading on used vehicle sales, check out:

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