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Welcome to NCM's Up to Speed Blog

How Carvana is Changing Used Vehicle Sales, Part 2

Ben-Weiler_1
Written By: Ben Weiler
Posted on May 09, 2019

Last week, we covered the strengths I saw in Carvana and why many customers are choosing this new platform for their next vehicle purchase. While it may seem like Carvana has it all, there are many advantages that a traditional dealership has over the online retailer. Today, let’s talk about Carvana’s shortcomings and how you may be able to capitalize on them.

Weaknesses of Carvana

#1: No New Cars: A big advantage you may have over Carvana is that Carvana is strictly a used car retailer. They simply do not have access to new vehicles from the OEM, meaning they have a strong reliance on obtaining trade-ins from customers and purchasing inventory from auctions or other sources.

#2: Delivery Range: Hidden in the details of the Carvana website is a section on their service area. Basically, Carvana has local markets that offer free delivery. However, these local markets are not everywhere, and don’t cover every major metropolitan area. If you live outside the service area, you have a few options:

1. Carvana will cover $200 of airfare (in reimbursement), and you fly to one of their “Vending Machines” to pick up your purchase. You then must drive your car home, which will count towards your 400 test miles during your 7-day trial.  

2. You can fly or drive to a local market and Carvana will meet you at an agreed upon location.

3. You can pay a nonrefundable $399 fee to have your car delivered in 5-15 days.  

Simply put, all of these options are not ideal for the consumer. How convenient is it for them to fly to the closest vending machine (or a random parking lot in an approved market for option 2) and drive their car home? At best, that is an entire weekend the customer has lost to purchase a car. Or, they can pay $400 to get your car in two weeks, and if they hate the car, they are out the original delivery fee, and will likely be charged another delivery fee for a replacement vehicle they will receive in another two weeks.

#3: Profitability: As of writing this article, Carvana has reported triple-digit revenue and unit volume growth but has still yet to turn a profit. According to CEO Ernie Garcia, "We think we're going to reach profitability way before hitting two million in annual vehicle sales.” However, he declined to specify a timeline for achieving this milestone. The biggest question around Carvana at the moment is if they can maintain their business model profitably as they continue to expand into new markets, as they have not reported a net profit since going public in April 2017.

How Your Dealership Can Compete

If you feel like Carvana is a big threat to your used car department, there are a lot of takeaways you can learn from the online giant.

#1 Your Diversified Revenue Streams: One big advantage for traditional dealerships is the many ways you can earn additional revenue. Your new car, service, and parts departments are all areas that Carvana is lacking. In fact, your service department may be earning revenue from Carvana purchases, as they send their warranty repairs to any dealership or ASE-certified mechanic for service. If these areas of your business are efficient and profitable, you have a nice foundation to compete with Carvana on the used car and F&I side of your business.

#2 Improve the Financing Conversation: This one is HUGE. If your financing feels more like an interrogation rather than a friendly sales conversation, then Carvana is beating you. Carvana has an easy-to-understand financing system, with terms that give the customer a choice in monthly payments, down payments, and rates. If you put off the financing conversation until after a car is selected for purchase, you are going to lose sales.

#3 Improve Your Website: Right now, there might not be a more important sales tool than your website. If your website is overcrowded, difficult to navigate, lacks visual appeal, has low-quality photos, or any other numerous issues that still exist on websites, Carvana is capitalizing on your errors.

At the end of the day, there is one main reason Carvana has found footing in the automotive marketplace. They work with their customers, provide a friendly and streamlined shopping experience, and provide a strong sense of value after each sale. It’s these same principles that have helped dealers be successful for decades, presented in a different online form. If you can provide customers with flexibility, a positive customer service and shopping experience, and sell them on the value of your used vehicles, you can be a choice destination for most consumers.

Want to learn more about how to improve your used vehicle department? Here are a few useful links!

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