Two years ago, Carvana seemed unstoppable. The dealer community feared that vehicle e-tailing would forever disrupt their operations. Their stock price soared to insane tech multiples. Most elite dealers launched remote sales processes of their own. Fast forward two years later, the market has demonstrated remote buying, although common, does not have the mass adoption that Carvana was promoting and banking on.
Carvana’s financial situation is becoming more precarious every month, as their heavy debt load to service ($6.6 billion at the end of the last quarter) and little available cash hamstrung them into punishing losses. Their enterprise value has dropped a whopping 97% in the past year… ouch!!! … another 7.8% today as I write this article. How will they operate when they don’t have a steady stream of investment cash to burn?
Consumers simply prefer to have a brick-and-mortar solution tied to the second highest purchase they make. Amazon figured this out. It is easy to buy online, but hard to return. Certain items like shoes and clothes, that require a proper fit, are not ideal for entailing. Returning items is so much easier to drop off in-person than to package up and ship.
I would argue that vehicles fit into this category. It is great to locate them online, but a test drive to feel the fit and finish on the vehicle is essential. Having a service department to back you up if something goes wrong with the vehicle is a huge value add. The contract and title work are so much easier in person. Easily exchanging your trade is great. And let’s not forget the joy and the experience of shopping gives so many consumers, when done right.
Smart dealers who adopt the Carvana remote buying practices and blend it with their in-person buying experiences ultimately have the upper hand. They are the ones that take the Amazon approach.
I for one hope that Carvana perishes with their challenges, so the customers have a better resource to buy and trade cars. Platforms like MotorCloud.com are so valuable to the shopper. Put ALL the cars in one spot. Let ALL the dealers post there and let the consumer find the exact one they like.