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

[NickCybela]

Carvana spends $22M on a better VDP (via acquisition of Car360) but isn't making money.

Dealers and OEM's have the cars and are making money... but are valued lower than the tech companies.

WHY?? (Did you know that in 2017 Ford made almost $7B but was valued less than Tesla... who lost $2B last year?)

Data and potential audience.

There's an interesting 2018 Deloitte study about what car customers don't like in their experience. I broke it into "Operations", "Process" and "Digital Retailing" and attached it here. The results are surprising. How many times have you heard, "my website sucks" (11% of customers didn't like digital tools) or "my process sucks" (10% of customers said that was true).

Our in-the-trenches perception does not necessarily match consumers.

This acquisition makes sense because:

1) Augmented reality will become a growing force across all industries this and upcoming years. The portability and accessibility will be critical and the Car360 seems to make sense when considering the potential there (if their technology actually produces a 3d model, at least)

2) Apps collect a lot of data for personal and shopping behaviors that can be used elsewhere. This would give a solid reason to install the application (imagine being able to physically step inside the used vehicle, from your home)

3) International markets don't necessarily have the cars you can drive off the lot with today (ex: Vive, a leading provider of virtual reality hardware has built VR Shops with 5 major manufacturers overseas)

However... in the US dealers have the cars today. There's no reason they can't continue to win in profit and volume if they're paying attention.

- Virtual reality can highlight those in-vehicle features and technology that customers care enough to pay more for but are not shown in a physical test drive.

- Augmented reality can be used to enable customers to shake the GM/dealers hand and hear why to buy from them

- Those immersive experiences enable good technology companies to watch and learn what customer trends are important in selling more cars, faster and can translate that into actionable insights for dealers including aftermarket upsells

 

[sam_s]

Based on Vroom's & Carvana's news, Ecommerce in auto retail maybe DOA.

Yesterday, @Alexander Lau finds:
Used car site Vroom lays off staff, 25%-50% says source, as it halts Dallas and Indiana operations

https://techcrunch.com/2018/03/05/u...ce-as-it-halts-dallas-and-indiana-operations/

The layoffs come in the wake of tumultuous times for some of Vroom’s other competitors.

In the UK, both Carspring and Hellocar shut down last year. Shift, meanwhile, laid off staff and paused operations in at least one market, but also eventually raised more funding led by BMW.

Perhaps biggest of all was Beepi, which blew through $150 million in funding before two potential sales fell through and it was sold for parts.
​

Today, Carvana reports:
Carvana stock tanks after company reports wider quarterly loss

https://www.marketwatch.com/story/c...mpany-reports-wider-quarterly-loss-2018-03-06
Shares of Carvana Co. CVNA, -14.35% fell more than 7% late Tuesday after the company reported a wider-than-expected fourth-quarter loss and revenue that also missed expectations. Carvana, a platform for buying used cars online, said it lost $47 million in the quarter, or 45 cents a share, compared with a loss of $36 million, or 26 cents a share, a year ago. Sales rose to $265 million, from $107 million a year ago. Analysts polled by FactSet had expected the company to report a loss of 39 cents a share on sales of $270 million.​

Carvana is in it for the long haul gentlemen. I'll keep it short and sweet. 1) Yes people will be buying cars, sight unseen & online, in the very... very near future. It happens now as we all know (predominantly on the most expensive of the market segments "Exotics"). So Rich people are cool with the concept already, but unfortunately most of us reside in middle class (largest retail demographic). That's even more unfortunate for Carvana, because now it has become their task to effectively run a marketing campaign (along with the operational aspect of the brick n' mortars) that'll not only convince someone to buy online, but more importantly incentive them too. The "Vending Machine" concept kinda comes into play here, but I am really curious to see how this specific task plays out even more so. They should call the guy/gal that got CarFax launched, that dude scared the crap out of a whole country with a cute little fox. That's messed up, ruined foxes for me.
Bottom line, get with a franchise store or toss your store owner a fiver the next time you see him. He's going to need it.


Back to Carvana real quick, YES they dropped some serious dough, but it's an expensive industry to be in & I'm 100% confident they knew this was a long game they we're playing in regards to the t-chart's. The market segment they decided to chase after requires a heavy heavy heavy cash front, and like I just said if you don't have the reputation you're going to need the cash for credibility. And if you think otherwise, if you think that locally you're established enough to survive this onslaught of competition... You're wrong, the internet is slowly working this industry down to a consolidated few (again relatively speaking). The minute people stop caring where they're getting their car from, It's game over. For those of you saying "Well, how are people going to test drive, or know what a car feels like, sounds like, or taste's like Sam?" Simple, go to your local franchise, get your free smell & lick, then go purchase that thing for far cheaper at home on your couch while watching T.V. & order me one while you're at it... Black on Beige anything foreign over 350HP with an MSRP of 75k or higher please, and a side of ranch (because it's ranch).

So not only did Carvana bring the cash to the table, they raised the industry a massive middle finger, and expanded all over the place (relative to conception of business). They're doing what every other dealer is doing across the country, only it's ingrained into the DNA of their business model. That being: 1)Cutting expenses 2)Keeping overhead low. Only they're seriously relying on the internet to do so, which is brilliant considering their customer base (AKA OUR customers) are ready to be transitioned into that type of automotive retail environment. I mean we buy things online for literally every other aspect of our lives, why not cars? They're leading the way, and unfortunately due to the stigma associated within the retail aspect of the industry, in combination with a false sense of education/knowledge consumers now have. Only the baller's of this industry will be making the real money down the line.

Exceptions: There will, of course, be a niche set of dealers whom will lay unclaimed by the vastness of the interweb.... the subprime/buy here pay here type joints. Beggar's still can't be chooser's in the future I guess, that's the way of the economy.


P.S. Carvana, Ernie, I'm ready to get going, just let me know when to get packed.

 

[joe.pistell]

It just dawned on @sam_s that Carvana is going to take over the world and he'd better get hired by Carvana 'cuz his Dealer is going to get toasted and he'll be on the street.

P.S. Carvana, Ernie, I'm ready to get going, just let me know when to get packed.

#NotSoFastSam-LotsOfRunwayLeftBeforeTakeOff

 

[hondadealer]

I think that as dealers we are missing the point. Online transactions should be seen as an opportunity for dealers not a threat. Here is how I see it:
1) We have seen a slow but inevitable movement towards online buying. Technology challenges and the complexity of the transaction have certainly made this a slow transition but we seem to be reaching a point of overcoming the technological difficulties. I think that the ability to avoid some of the pain points in the dealership transaction and increasing comfort with online buying in general will continue to motivate the public to want at least some elements of the online experience. Really, they already are as most of the search and selection process happens online rather than at our dealerships.

2) Online versus in store isn't an all or nothing proposition. If the customer could complete most of the transaction online (including F&I) but have the option of test driving before they buy, it would benefit both customers (shorter and easier transaction time) as well as dealers (less transaction time would mean less personnel needed). Even if the customer comes into the store for one or more of the steps, having the customer complete part of the transaction online is ultimately to our advantage.

3) A great part of the fear of dealers is the potential loss of F&I income. We know what Carvana doesn't seem to know. Without F&I income, no one can make money on used or new cars regardless of their business model. An online process that takes the customer through the various F&I presentations and is ultimately successful in replicating the income level derived from our in store process is key and would also provide further cost savings. I'm not convinced that anyone has completely solved this yet although there are no lack of vendors claiming that they have. The jury may still be out on this point but I don't think that it beyond the realm of possibility that the consumer would buy just as many products based upon a professional, consistent, video presentation of the different products than the one on one randomness of our F&I Managers presentations. This is the area that scares me the most as a dealer and will be the real break through if and when it happens.

4) Used car success is all about acquisition. As franchised dealers, we have a huge advantage. Factory closed auctions and new car trade-ins put us in an enviable position versus Carvana. Carmax learned this early and have devoted their efforts into buying vehicles off the street as well as auctions. Whether you are buying a piece of inventory in the lane, on an online auction, or from a private individual, it is still a one vehicle by one vehicle process. It is tough to scale this to much of a significant advantage. As dealers, our experience and unique sourcing advantages give us a huge leg up on independents, and we have access to software (vAuto and others) that allow us to understand the market as well as any large independent.

5) The retail car business and used cars is an extremely competitive business. There is nothing particularly unique or proprietary about what Carvana does or the software that drives it. There are numerous iterations of software now available (this year's NADA showcased many) that effectively allow anyone to do everything that Carvana does. I'm truly confused as to how Carvana's profit levels will improve with scale? As several of you pointed out, selling cars online has been happening for years before Carvana came around. It is and will continue to be a low margin business. Today's modern search engines and websites allow customers to quickly and easily find the lowest priced vehicle in a given market. Ultimately, the consumer will still gravitate to the lowest price regardless of how they purchase it.

So how does this create an opportunity for the franchised car dealer? We have the opportunity to lower our personnel costs (which are significant in both Sales and F&I), utilize smaller facilities to sell just as many cars, and still maintain the advantage of inventory sourcing over stand alone independents. I imagine our Sales BDC's helping guide customers through as much of the process online as is possible and within the comfort level of the consumer rather than just trying to "get em in" so that we can restart the process from step 1 with a commissioned salesperson. Yes, there will still be customers who prefer to go from A to Z in person, and we will still need staff for that as well as delivering vehicles, arranging test drives, and finalizing the F&I process. However, my short and limited success with offering an online buying option results in a shorter transaction time, less work for staff in the dealership, a customer who ultimately converts in store at a very high rate, and a very satisfied customer. Yes, it is a hybrid model and not a true online model but I think that ultimately that is where this is going. Apple sells most of their product online but many people still flock to the bricks and mortar Apple stores for help using their Mac.

I agree that the Carvana model will not be the future and do not feel threatened by them or others making our business model extinct. But lets not reject some of the opportunities borne by the technology available and the increasing willingness of the consumer to complete some or all of the transaction on their computer rather than in our showrooms to ensure that we thrive in the future.

 

[joe.pistell]

@hondadealer Many interesting comments, TY. I've got a different take on digital retailing's future.

We have seen a slow but inevitable movement towards online buying.

​

I can appreciate the anecdotal evidence that ecommerce is everywhere around us, but I differ from your thoughts. In my decade as a CMO, I can't recall phone ups or chats or email shoppers asking for a cart. I'd have sales reps and BDC's asking for a cart (as a phone sales tool). I'm always stunned at how many questions are on shoppers minds. The answers are out there, but you need a Gen Y to find it for you and a PHD to explain it

IMO, the car dealer marketplace is evolving more towards BestBuy and way from Carvana. Like Bestbuy, car shoppers want to CONCLUDE their internet shopping by seeing and feeling the product and asking questions. Like BestBuy, car shoppers will be webrooming dealers to close the deal.

I agree with you, an 'at home, digital transaction' will happen, but it'll happen AFTER the in-store experience has occurred (i.e. a be-back tool)*.


*caveat: Not all OEMs are alike. Some have simple trims and packages, other OEMs are highly complex. The more complex the product line, the less likely 'pre-visit' digital retailing carts will work (i.e. GM's trim package chaos & it's low performing 'shop-click-drive).

 

[joe.pistell]

Really, they already are as most of the search and selection process happens online rather than at our dealerships.

hondadealer, a thesis to test: "How many shoppers are ready to buy when they walk in" (they're shopping cart ready!)

Get an green pea to shadow sales reps right from the meet and greet. Ask the greeny to write down the 1st 3 questions the shopper asks the rep. Collect a couple of days worth of questions and bucketize them.

Bucket #1: Where is stock #1234? (or similar VDP hit (YMMT color price, etc)
Bucket #2: All other questions.​

I'd love to hear your numbers (or anyone else that can run this test). I did this when I was a CMO. In my travels, bucket #2 outnumbered #1 10:1 or more. From a CMO's P.O.V. bucket#2 is a collection of questions shoppers couldn't find on the web* and they NEEDED to come to "THE FINAL AUTHORITY" (i.e. Mr Dealer) to get answers.

Just my $0.02,
Joe

p.s. questions in bucket #2 are a Merchandising treasure. They'll make a killer FAQ for your site AND create great content for your youtube channel (to embed on your website).

*because ALL our website suck

 

[Rick Buffkin]

@joe.pistell

 

[Alex Snyder]

Too easy to get caught up in the cool factors when the cart hasn’t even been put in front of the horse.

 

[hondadealer]

hondadealer, a thesis to test: "How many shoppers are ready to buy when they walk in" (they're shopping cart ready!)

Get an green pea to shadow sales reps right from the meet and greet. Ask the greeny to write down the 1st 3 questions the shopper asks the rep. Collect a couple of days worth of questions and bucketize them.

Bucket #1: Where is stock #1234? (or similar VDP hit (YMMT color price, etc)
Bucket #2: All other questions.​

I'd love to hear your numbers (or anyone else that can run this test). I did this when I was a CMO. In my travels, bucket #2 outnumbered #1 10:1 or more. From a CMO's P.O.V. bucket#2 is a collection of questions shoppers couldn't find on the web* and they NEEDED to come to "THE FINAL AUTHORITY" (i.e. Mr Dealer) to get answers.

Just my $0.02,
Joe

p.s. questions in bucket #2 are a Merchandising treasure. They'll make a killer FAQ for your site AND create great content for your youtube channel (to embed on your website).

*because ALL our website suck

If the above was true, we wouldn't have seen the massive increases in closing ratios over the past 10 years. Speaking of numbers, are you really going to argue that the reason that closing ratios have risen from 20 -25% to 40 -50% (higher on used than new) over the past 10 years is due to the better job that our salespeople are doing? Most customers who come in on a used car, have done their homework and have far fewer questions (other than is Stk#1234 still available?). Again, this is a positive for the dealer, not a negative.

And you really believe that the average customer feels that the only place they can find the answers to their questions are on the showroom floor? All evidence shows the opposite. I do feel that our salespeople add value and will remain an integral (albeit smaller) part of the process. I just don't see the point of sticking my head in the sand and pretending that nothing is changing.

 

[sam_s]

It just dawned on @sam_s that Carvana is going to take over the world and he'd better get hired by Carvana 'cuz his Dealer is going to get toasted and he'll be on the street.




#NotSoFastSam-LotsOfRunwayLeftBeforeTakeOff

Well Joe in so many words I guess you can say that. Except I see myself as a part of that movement along with Carvana, I'm removing dinosaurs from this industry every day. I put myself on the fast track.. It would just finally be nice to have a conversation with someone a little more progressive than most of the management I interact with on a daily basis, I hate having to slow shit down.

Honda Dealer Get's it.... But again, it's like why are we having to break this topic down to it's core repeatedly....