BREAKING news! Carvana & Vroom is bleeding cash. Is Ecommerce in auto DOA?

[Alex Snyder]

Can dealers adjust and create better experiences, of course and some have. Will they do it in mass, I doubt it.

I see you added your employer to your profile. So you work for Carvana?

 

[Cullen C]

I see you added your employer to your profile. So you work for Carvana?

Nope. I did for a time. I have tried to, unsuccessfully, update my profile a while back, I wasnt sure it really mattered but for some I suppose it does.

But sure take what I say with a grain or two of salt about Carvana but the references to articles about CarMax and the responding dealer attitudes are pretty hard to dispute. The results from Carvana's most recent qtr are also hard to ignore.

 

[jscole86]

If I was a CEO of a Big, Hairy Audacious Vendor, I'd bring smart car dealers into my org AND send my brightest tech minds into car dealers for several months (& send them back again and again)

Amen. Amen. Amen. If dealers knew that having these conversations would ACTUALLY result in improvements that make our operations more efficient and streamlined, it would set a different relationship as well with vendors.

 

[CARBIZ]

Regarding Carvana’s recent earnings reports. The increase in gross vehicle profit is impressive and I was skeptical they could achieve this.

I haven’t spent time digging deeper into this so could be just curiousity, but if they control the reconditioning internally wouldn’t it be possible to lower those costs (labor rate, parts mark up, etc...) to inflate their front end numbers??

Again, they may spell all this out and I haven’t taken the time to research so potentially playing an ingnorant devils advocate

 

[Alex Snyder]

But sure take what I say with a grain or two of salt about Carvana but the references to articles about CarMax and the responding dealer attitudes are pretty hard to dispute. The results from Carvana's most recent qtr are also hard to ignore.

I take what everyone says with a grain of salt. We all have our biases.

Don't take my callout of your prior employment as a way to disrupt the argument. That would be completely contrary! I welcome the other side of the argument and wish Carvana did participate here.

Yes, dealers have overlooked many potential disruptions. But none of those potential disruptions have ever impacted their bottom line with the exception of the Internet. CarMax isn't a bottom line crusher. Carvana isn't a bottom line crusher. Independent service shops aren't bottom line crushers. Yes, there is some impact. Is it measurable impact?

There is also an argument to be made about dying from thousands of paper cuts too. Are we there yet?

 

[Cullen C]

I take what everyone says with a grain of salt. We all have our biases.

Don't take my callout of your prior employment as a way to disrupt the argument. That would be completely contrary! I welcome the other side of the argument and wish Carvana did participate here.

Yes, dealers have overlooked many potential disruptions. But none of those potential disruptions have ever impacted their bottom line with the exception of the Internet. CarMax isn't a bottom line crusher. Carvana isn't a bottom line crusher. Independent service shops aren't bottom line crushers. Yes, there is some impact. Is it measurable impact?

There is also an argument to be made about dying from thousands of paper cuts too. Are we there yet?

Not totally sure we are there yet but I am pretty sure there are less dealers today than there were 25 years ago. There are even fewer non public groups over that same period of time. And even fewer single point operations left. There have been a myriad of changes and it would be hard to isolate CarMax as the contributor to a dealer going bust or having to sell but I am sure that has happened. The difficulty is that story doesn't get told.

How will you know who has had their bottom line crushed by looking at the survivors?

Also the simple fact that so many have survived what has been a really tough decade or so is exactly what makes them both resistant to change and potentially ripe for disruption.

 

[Alex Snyder]

Not totally sure we are there yet but I am pretty sure there are less dealers today than there were 25 years ago. There are even fewer non public groups over that same period of time. And even fewer single point operations left. There have been a myriad of changes and it would be hard to isolate CarMax as the contributor to a dealer going bust or having to sell but I am sure that has happened. The difficulty is that story doesn't get told.

How will you know who has had their bottom line crushed by looking at the survivors?

Also the simple fact that so many have survived what has been a really tough decade or so is exactly what makes them both resistant to change and potentially ripe for disruption.

I don't know the difference in the number of dealers from 25 years ago, but my former employer tracked dealer counts like their revenues depended on it (it did!). There was a significant dip in franchised dealerships after the recession of 2008/09. Over the last 10 years the number is just about back to where it was prior to the recession. This same trend has been confirmed by a rather large investment company I have spoken to recently.

So yes, your last point might carry some weight in that regard. I still struggle to see any disruption coming from anything that is currently in the industry.

 

[Cullen C]

I don't know the difference in the number of dealers from 25 years ago, but my former employer tracked dealer counts like their revenues depended on it (it did!). There was a significant dip in franchised dealerships after the recession of 2008/09. Over the last 10 years the number is just about back to where it was prior to the recession. This same trend has been confirmed by a rather large investment company I have spoken to recently.

So yes, your last point might carry some weight in that regard. I still struggle to see any disruption coming from anything that is currently in the industry.

I suppose disruption in the traditional sense of totally supplanting long standing offerings may never happen. But Carvana is going to sell 100k used cars this year, those cars have to be coming from someones share. And those annual numbers will undoubtedly grow.

 

[Matt Lasher]

This would require a few things:

1. Someone who can translate "dealer speak" to technologists
2. The advice of the dealer needs to be heeded
3. The vendor's employees need to actually like dealers
4. The technologists would need to stop being "wounded" customers in their own heads
5. Someone needs to switch the echo chamber, within every company, from the bureaucratic yells to repeating what the dealers said

FWIW - and perhaps a bit romantic, but I thought DDC CRM team had these bullets. Until the board room battle over protecting revenue I'm not confident the established technology partners in the industry are aligned with the dealers objectives in trying to create products that help both sides of the fence (providing a differentiated dealer experience that is enjoyable and relevant to the consumer needs and wants). My company has over 400k unique customer records - a unique competitive advantage to be sure! - but the millions we spend on tech partners each year fail to fully realize this potential. Makes sense carmax going solo with crm infrastructure. presumably carvana as well. franchised dealers have a different barrier with OEM approved vendors. Does anyone know how sonic's mega investment in internal tech been working out?

 

[Steve Stauning]

I suppose disruption in the traditional sense of totally supplanting long standing offerings may never happen. But Carvana is going to sell 100k used cars this year, those cars have to be coming from someones share. And those annual numbers will undoubtedly grow.

I don't think most people doubt how many vehicles Carvana will sell this year - their growth (albeit without profit) has been impressive.

That said, their base was relatively small and their gross margins are still just shy of the average dealer. They will plateau because we are talking about used cars here and not books, videos, shoes, or groceries. There aren't any suppliers to muscle (like Amazon did to theirs). There aren't any sales tax advantages over the existing marketplace (like Amazon exploited for years). And, there aren't any used car factories that can ramp up production for Carvana.

So, without the customer database (of a traditional dealer), the access to closed auctions (like a traditional dealer) and trade-ins on new cars (like a traditional dealer), their growth and profits will (at some point) be limited.

The used car market in America is one of the most efficient markets around. Between tens of millions of annual transactions, traditional auctions, transparent online retail pricing, and dealer pricing tools, there really are relatively few "inefficiencies" to be exploited.

Moreover, I predict Carvana will always have to spend heavily on the most expensive marketing - that is, the name recognition ads they currently run. Unlike the Chevy dealer I drive by everyday, Carvana simply won't be top-of-mind for most in-market consumers without it. Unlike Amazon, no one is shopping at Carvana.com every week (as 85% of Amazon's Prime customers do SOURCE).

They're every bit of a $2 billion company... unfortunately for those still holding the stock, Wall Street will figure that out at some point.