Startups like Vroom, Carvana, Beepi, and Shift are starting to see more sales traffic this year. Consumers can use their mobile device or laptop to see photos of pre-owned vehicle, find competitive prices, walk through the legal paperwork, and complete the transaction quickly.
Consumers value convenience, and competitive pricing, very much these days. An Accenture study found that 75% of U.S. respondents to its survey would consider making car selection, financing, price negotiation, back office paperwork and home delivery completely online.
This virtual dealer business model is taking off for Carvana. That company went from $5 million in revenue in 2013 to $40 million in revenue last year, and is on pace to hit $120 million this year.
How does this growing sales trend affect dealers? For now, it appears that private party sales (which make up about 60% of used vehicles sales in the US) are where these transactions are happening. For example, most of the cars for sale on Beepi are owned by individuals who might otherwise have traded them for a new car or sold them through a classified ad, Craigslist, or a third-party site like Autotrader. Used car shoppers are likely drawn from similar channels.
Here’s how a sales transaction takes place with Beepi:
• Potential sellers schedule an appointment for a Beepi Inspector to conduct a two-hour, 185-point vehicle inspection and photo session.
• If the car passes, the owner gets a price, the car is listed and a sale is guaranteed in 30 days.
• Beepi marks up the car 3% to 9% more – depending on the vehicle – and keeps that for its profit.
• The company says it will pay $1,000 more than a dealer’s best offer, but to enforce that a customer must have a written or electronic offer to present Beepi.
• Buyers go to the site, click on a car and see a no-haggle price.
• They look through extensive photos of the car’s exterior and interior and read a vehicle history and condition report. Shoppers who hit the “Buy Me” button can pay with a personal or cashier’s check, a bank wire transfer, a loan through Beepi or finance the car using up to five credit cards. They can even pay with Bitcoin, the virtual currency.
Carvana has a more traditional business model. The company buys cars, ships them to depots in Atlanta and Dallas where it reconditions the vehicles. Carvana buys up vehicles from individuals, auctions, and automaker finance companies disposing of previously leased vehicles.
Consumers have a lot more options for car shopping with new and used cars these days. Virtual showrooms have a tough, competitive climate to move through and will see competition from strong third-party used car listing sites that dealers are working with.