A day in the life of Carvana.

[Retail My Ride]

New disruptor world according to Carvana.

They bought a 2014 RDX this morning via Manheim Simulcast w/ MMR $14,000 for $15,200. Their buddies at CarGurus say Retail IMV is $16,300. But, their private seller cash offer on CarGurus.com is $12,700-$13,500 from guess who? Their buddies at Carvana. That $15,200 auction purchase today will quickly become $16,000+ with buyer fees, transport, reconditioning etc.

So, how the heck does the math work for them to make money?

Carvana says their GPU is $2,800 and rising. Can't be from bidding cars at auction. Bingo! The battle for private party is going to get very nasty this year between the big dogs - Carvana, Carmax, Vroom, AutoNation.

Just 2 quick points: Private seller could net $14,500 - $15,000 selling the RDX through a consignment dealer. And consignment dealer could have that RDX on their lot for FREE and earn approximately $1,200 -$1,500 margin selling it.

 

[JordanWalters75]

Is MMR $15,200 or is MMR the total cost back to the store? I've always thought it should be the latter. The opportunity lies in giving consumers a meaningful number on your website and carry that number over into your showroom. Start doing that, and their addressable market shrinks.

 

[Retail My Ride]

Hi Jordan. MMR is Manheims rolling composite average based on actual recent auction transactions (before fees, and any get-ready costs) for similar vehicles with adjustments for different mileage, region, condition, and color.

 

[JordanWalters75]

Hi Jordan. MMR is Manheims rolling composite average based on actual recent auction transactions (before fees, and any get-ready costs) for similar vehicles with adjustments for different mileage, region, condition, and color.

I know what it is, but I think dealers should think of MMR as the total back at the store(Trans, PSI, Buy Fee) etc... Just a thought

 

[Retail My Ride]

Ok. Misunderstood at first. That would be great!

 

[chad.bockius]

There is a lot to dig into here. Averages can be very dangerous when the spread is wide. We see this all the time in looking at what cars will sell for. Transactions might range from 15-18k but the average is 16.5. The folks on the wrong side of the average are losing and the ones on the other side are making a decent profit. I talked about this at Autovate if you're interested in seeing some real-world data: Your Dealership Is Not Average

My guess is that Carvana is taking advantage of its own data science and logic to drive these prices. The same logic that drives their instant cash offers. I agree that the race is on to compete in this space. I talked more about it on the DealerRefresh blog here: https://forum.dealerrefresh.com/threads/acquiring-cars-in-2020-beyond-watch-out.6880/unread

This market is just getting started...2020 will be the year of (real) Instant Cash Offers, not wholesale trade-in values.

 

[CliffBanks]

Which is one reason why CarMax invested $50 million in Edmunds last month -- look for an "Instant Cash" Offer type solution coming from that relationship. It's that battle for the private owner inventory...

New disruptor world according to Carvana.

They bought a 2014 RDX this morning via Manheim Simulcast w/ MMR $14,000 for $15,200. Their buddies at CarGurus say Retail IMV is $16,300. But, their private seller cash offer on CarGurus.com is $12,700-$13,500 from guess who? Their buddies at Carvana. That $15,200 auction purchase today will quickly become $16,000+ with buyer fees, transport, reconditioning etc.

So, how the heck does the math work for them to make money?

Carvana says their GPU is $2,800 and rising. Can't be from bidding cars at auction. Bingo! The battle for private party is going to get very nasty this year between the big dogs - Carvana, Carmax, Vroom, AutoNation.

Just 2 quick points: Private seller could net $14,500 - $15,000 selling the RDX through a consignment dealer. And consignment dealer could have that RDX on their lot for FREE and earn approximately $1,200 -$1,500 margin selling it.

 

[Alex Snyder]

2010s automotive “Disrupter” = a company that can burn cash better than others.

I miss the automotive disrupters of the 1990s and 2000s who gave us things like faster loan approvals and helped us realize there actually is a used car marketplace. Companies who truly brought value to the industry. I’m hopeful the disrupters of the 2020s will dent the automotive universe again.

 

[ryan.leslie]

I miss the automotive disrupters of the 1990s and 2000s who gave us things like faster loan approvals and helped us realize there actually is a used car marketplace. Companies who truly brought value to the industry. I’m hopeful the disrupters of the 2020s will dent the automotive universe again.

I don't know Alex, I think this is going to put more than a dent in the automotive universe. Here are some thoughts in no particular order:

• We've been chasing "transparency" and "CX" since at least 2010. The last, and arguably the highest, hurdle has been trade value. I said this somewhere else in the forum, but I think this is going to usher in a different meaning of "pricing transparency" for consumers to include ACV. That makes a dent.
• A lot of smaller dealers have benefitted from following the lead of the publicly traded retailers since the birth of digital. Think best practices for photo quality, descriptions, inventory mix, etc. This shouldn't be the exception. A reliable strategy to acquire inventory outside of the traditional means can put a dent in the expense line of the monthly P&L, and a bump to profitability using Carvana's published numbers as evidence.
• I remember many years ago talking to a dealer that was livid about newcomer CarMax's auction strategy. He said something like "the CarMax guy walked in with his hand in the air, midday I saw his hand sticking up over the bathroom stall wall, and it was still in the air sticking out of his sunroof when he left... maybe he had a shoulder injury?" He was sure that they were overpaying for everything, but he didn't have the back half of the equation. If CarMax knew what they were going to sell the car for, they also knew what they could pay for it and still profit. We have evidence that what a specific dealer will sell a specific unit for isn't tied to a market average or historical book average. Changing the way we think about asset value, both at retail and acquisition, and individual value propositions will make a dent in the universe too.

 

[Alex Snyder]

I don't know Alex, I think this is going to put more than a dent in the automotive universe. Here are some thoughts in no particular order:

In regards to getting better with online trade numbers, I hope you're right. My post was directed at the Carvanas of the world. I'm not convinced they're the ones who are going to make the world a better place.

There is also a major element missing in all of this: payments. Customers don't buy cars solely on what their trade is worth. And there are more than 16,000,000 new car buyers who are also looking for incentivized deals.

When the trade and the payments can align online, then a dent may be felt.