As Carvana crashes, used car dealers, not buyers, stand to win big

https://www.businessinsider.com/used-vehicle-retailer-carvana-bankruptcy-car-buyers-inventory-2022-12

by deltaomega • 4 years ago

159 216 4 years ago

pcurve• 4 years ago

Until recently, they've been able to keep expenses relatively low, but selling cars has always been low margin business.

Their sales is still pretty strong, so I hope they're able to restructure their debt with creditors.

meta20232• 4 years ago

There was a whole lot of fraud going on between Carvana (public) and DriveTime (private). It'll come out in due course.

smt88• 4 years ago

Can you explain the nature of the fraud and how it benefited each company?

jsemrau2• 4 years ago

This well researched article maybe assists here. https://seekingalpha.com/instablog/767332-clastic/5627003-ca...

Spooky23• 4 years ago

I wouldn’t believe that. It’s a financial scheme where they were somehow able to get massive collateralized loans to buy lots of inventory whose value is very volatile.

It is reminiscent of an attempt to corner silver or something. I’m sure the insiders cashed out.

godzillabrennus2• 4 years ago

Doesn’t help they seem to have played so fast and loose they lost the legal ability to register vehicles in the name of their buyers:

https://www.motor1.com/news/621947/carvana-title-registratio...

hnburnsy• 4 years ago

One of Carvanas major problems is titleing and registering cars doesn't scale. It is in most stares a manual, paperwork driven process. Example, Ohio has 88 County Clerks of Courts Title. Source, family member who worked there.

rwbt• 4 years ago

Easy to blame that it's a manual paperwork driven process, but I'm glad that transferring a legal title isn't a one click process. These are not software EULAs and title related fraud is still a big risk even with all the safeguards.

National chains like CarMax handle this paperwork just fine and Carvana should've invested more in the back office staff rather than overpaying for used Jettas, you know to move fast and break things.

godzillabrennus2• 4 years ago

Ohio has electronic titling now for dealers.

jen_h2• 4 years ago

I went through this, it was a total battle to get them to legally register our car and I wouldn’t recommend the experience to anyone.

I’m really surprised to have had to have scrolled down this far to see their registration hijinks mentioned…

FireBeyond3• 4 years ago

My girlfriend had a -similar- issue with Shift. She was their first sale in Washington when they expanded up here, and for whatever reason, titling and registration was screwed up repeatedly.

What was interesting was that when the temporary tabs expired, rather than extending them, they put her -in a rental- for two -months- and paid those two months payments, -and- gave her $300 for her trouble.

generj• 4 years ago

I imagine anyone expanding into a new state expects title issues and budgets for goodwill for the first few customers.

altacc• 4 years ago

The problem seems to be that they sold too many cars with a negative margin. I've heard stories of people selling their cars sight unseen to Carvana for above market value and it seems they were left holding too many cars as the second hand car market normalized and prices decreased. Like a lot of VC funded companies, they were blinded to market realities by the cash each funding round produced. If they'd had to purchase cars with profits of past sales and their stock as collateral, they might have seen the reality sooner.

kodah2• 4 years ago

The new car market is also probably contributing. I just bought a house and sold my hybrid for a Tacoma. I walked into a dealership lot to buy a '20 with 40k miles on it. I left with a brand new Tacoma with zero miles and a better package for $10k less. I was able to do this because the dealership needs to move inventory to get new cars from Toyota and hybrids are very in demand.

donw• 4 years ago

Why'd you go for the Taco over a Tundra?

version_five3• 4 years ago

Sounds superficially a lot like zillow

dralley• 4 years ago

ZIRP gonna ZIRP

MuffinFlavored• 4 years ago

The problem seems to be that they sold too many cars with a negative margin. I've heard stories of people selling their cars sight unseen to Carvana for above market value and it seems they were left holding too many cars as the second hand car market normalized and prices decreased.

How did a bunch of paid professionals in their leadership not see this coming/account for this happening?

treeman79• 4 years ago

Guessing their bonuses and KPIs were based on volume. Not profit.

Same reasons selling pet food online at a loss drive the crash of 2000.

Capitalism rewards efficiency of resources. Idiots are punished harshly.

SturgeonsLaw2• 4 years ago

Just because someone is in a leadership position, doesn't mean they're competent.

Not a commentary on Carvana in particular, I know nothing about them, just an observation I've made over the years.

birken• 4 years ago

I sold two cars to Carvana in the last year and in both cases the offers from Carvana (which included them picking up the car from my driveway) were multiple thousands of dollars better than Carmax or dealerships.

Could I have made more selling privately? I don't know, but I can tell you that Carvana paid very handsomely to do all the work involved with buying your car.

jeffbee• 4 years ago

The success of Carmax has long been that they are just better on the buy side than anyone else. They are just a large used car dealer with excellent auction buying strategy. It makes sense to buy from Carmax but it doesn't make a ton of sense to sell there. You know they are trying to squeeze you on that side of the deal.

Carmax never loses money. Carvana has never earned a profit. It's sort of a big difference!

Aunche2• 4 years ago

Carvana definitely lost money when I sold to them. The car had a lot of minor problems that needed to be addressed if they ever wanted to sell it. When it came to reporting the quality, there were only 3 options. I chose the middle option even though it needed thousands of dollars worth of repairs. The person who picked up my car basically told me that they have no incentive to care so long as if you're obviously being dishonest.

ShredKazoo2• 4 years ago

Maybe there is a role for humans in the used car business for the foreseeable future, just because any automated method for assessing used car value runs into the "winner's curse" problem? (Essentially the only people who sell their cars to the automated system are the ones where the automated system offers them the best price, because there's a problem with the car that the automated system isn't picking up on.)

csours• 4 years ago

The line always goes up! What do you mean, what happens when the market cools down?

paulpauper• 4 years ago

A car vending machine . This is why investing in gimmicks/fads is generally not a good idea.

PaulHoule• 4 years ago

It's a super-competitive business.

miketery• 4 years ago

I wonder how well this rule holds. What’s a gimmick vs not?

Juicero yes, Paleton probably, electric scooter depends on infrastructure?

rhaway847732• 4 years ago

The car vending machine was probably better looked upon as a marketing technique than the core of the business.

rodgerd3• 4 years ago

There's a lot of appeal to a car vending machine if done right. Like, if I could plug in that I want a Prius Alpha dropped off at my door for no more than X dollars, and someone would hook me up with a well-vetted second-hand Alpha, I would totally be very happy with that instead of guessing and wrangling.

The problem is that involves a lot of stuff that self-styled hyperscalers are garbage at: quality checks, human interaction, and such.

cramjabsyn3• 4 years ago

Good riddance. Their shady, shady, practices took full advantage of the trust customers need to have in a full service used car dealer. The execs should face legal penalties

thejteam• 4 years ago

Not going to defend Carvana... but most people trust used car dealers about as far as they can throw a full size pickup.

Most of the problems with Carvana are the same problems you get at any used car dealer, just magnified by scale. All of the title/registration problems. Financing. Availability. Communication. No better or worse than any random dealer.

My first car ever (25+ years ago) I received the wrong plate from the dealer. My dad and I noticed it and ran back to the dealer a day or two later. Good thing they didn't give away the plate they were supposed to give us.

bombcar7• 4 years ago

That’s a relatively minor one compared to what I’ve heard tell of - imagine buying a new car to only realize they gave you one that didn’t match VINs with all your paperwork - because they had two on the lot and you don’t notice u til you go to sel it years later.

cramjabsyn3• 4 years ago

It is objectively worse because with carvana you cannot physically walk in and talk to the same salesperson.

They send you into a revolving door of phone associates.

Like comcast, but for cars

ape4• 4 years ago

But buying a car from a dealer remains horrible

barbariangrunge• 4 years ago

This. Car dealerships are some of the most unpleasant places I’ve ever been inside. Pushy, manipulative, sleazy… it drove us to buy our last vehicle on Kijiji

subroutine• 4 years ago

Have you tried carmax? They don't allow sales people out on the lot. All the cars are unlocked, so you can get inside, and you can get all the info about the car from their app. I bought my last 2 cars from carmax, and was a totally painless experience.

cjoelrun• 4 years ago

You pay a non insignificant amount more for this experience. Not that it isn't worth it to some people, you don't get a horrible price you're just guaranteed not a low price. True about the entire haggle free market though.

ghaff8• 4 years ago

In a way, the hard to negotiate market makes things easier. It took me about 6 weeks to get a car that was "in transit" which actually meant it was "in the manufacturing pipeline." But, other than that, I spent maybe a few hours at the dealer on a couple visits, negotiated down some factory installed options by getting them added to a trade-in, mostly fended off some upsells... No it's not just click and buy on a website but for a big purchase, hard to call it horrible.

dboreham• 4 years ago

I've bought a few cars from dealers in recent years and honestly the experience was ok to fine. In every case I knew which vehicle I wanted to buy before contacting the dealer, so perhaps that makes a difference. Through the whole process where they try to make you buy warranties and so on, I just say "I feel lucky", and chuckle a bit. If they ask about another warranty, I repeat "I feel really lucky", again jovially. Nobody has tried to ask a third time.

bombcar7• 4 years ago

Dealers can be pretty decent if you know a good one and just say no.

Or ask why they offer a warranty if the car’s so good. The answers are always amusing.

davewritescode• 4 years ago

The problem is with buying cars site unseen. I follow some car groups that revolve around tuning BMW engines for lots of power. It became a meme to post before and after pictures of heavily modified, drag strip/race prepped cars and then on the back of Carvana trucks some months later.

I feel really sorry for people who bought some of those 340s and M3s.

It’s just too easy to unload junk cars on companies like Carvana. Dealerships have the tools to sniff this stuff out during trades.

yellow_postit• 4 years ago

Even Carmax does a modicum of due diligence. Carvana just sounds like a terribly run business model that could only operate on hopium.

ghaff8• 4 years ago

Even dealers weren't digging deeply during peak shortages. I probably overpaid for the new car I had to wait for last summer. (Minimal negotiating leverage.) But I got what seemed like a surprisingly high trade in as well.

But part of that was there was probably a period where you had buyers who were desperate for vehicles, any vehicle, that would get them to work or the store.

whakim2• 4 years ago

I don't actually think buying cars sight unseen is the main obstacle here, because what you're describing (folks taking advantage of the system) represents a tiny percentage of transactions.

I think the biggest issue is that you've taken a business which has notoriously low margins (used cars) and you're operating on the lowest margin end on both sides. On the sell side you're buying cars that would otherwise be sold private party - i.e. from the most price-conscious sellers. On the buy side you're competing against dealerships on price but also offering a more premium/white-glove experience which eats into your margins.

scarface744• 4 years ago

The problem is that like with OpenDoor, asymmetrical information favors the seller.

If I know I can get a better deal, I’m not going to use Carvana or OpenDoor. If I know there is something wrong with my car/house I’m going with Carvana/OpenDoor.

Retric• 4 years ago

It’s a tiny percentage of the market, but if you’re not doing due diligence then it’s going to be a large problem for you.

bastawhiz• 4 years ago

When I went to buy my car from Carvana, the guy that helped me said that the cost of used cars was incredible. People were buying cars, then trading them in a month or two later for a profit. He suggested I come back in a month or two to do the same to get a newer model.

I'm not sure what the folks at Carvana were thinking, but it seems like even with a wild used car market and high inflation, this shouldn't reasonably be possible. Or at least, their sales associates shouldn't be pushing it.

Mistletoe• 4 years ago

Myself and many members of my family made some great easy sales to Carvana (they drive a truck to you!) and car dealers (they had to pay more than Carvana to get a car) way above market price several times during lockdown. I would like to thank the early investors in Carvana for these great deals and only wish it could have continued longer.

Who invested in Carvana? Carvana has 3 investors including JPMorgan Chase & Co., Ally Financial, and Citi.

KennyBlanken3• 4 years ago

What's funny is seeing the correction in action on cars.com / autotrader.com. You can see the price history, and dealers even just 6 months ago were asking outrageous prices and have since slashed their asking prices because they can't move the things, because new cars are cheaper or not much more expensive, have a warranty, and better financing.

bombcar7• 4 years ago

That’s what kills these things - they think it’ll never change and start acting accordingly.

And of course it turns out that car companies are actually going to keep making cars.

jedberg• 4 years ago

I'm not surprised. I've heard multiple stories from multiple people about Carvana just forgot to collect money from them. They bought a used car, the car showed up, and Carvana just never took the money from them beyond the deposit.

This is not only bad for Carvana and their cash flow, but bad for the buyer too, who just has to keep the money sitting there forever in case Carvana fixes the glitch and tries to transfer the money.

I guess at least if they go bankrupt they can finally assume no one is coming for the cash...

grumple• 4 years ago

I'd expect debt instruments to be sold to debtors. Don't count on this.

jsemrau2• 4 years ago

Likely. Running extended collections operations across highly dispersed (low density) population is extremely expensive.

rodgerd3• 4 years ago

I guess at least if they go bankrupt they can finally assume no one is coming for the cash...

My expectation would be that the liquidator is immediately going to start chasing those people, hard. Carvana may not be competent to organise collecting monies owed, but the folks managing bankruptcy? Hell no.

Waterluvian• 4 years ago

Bankruptcy companies are like Star Wars backwater scrapyards. Might not seem sexy or high profile but man do they know how to strip a company down quickly and effectively.

adrr• 4 years ago

They could always get in writing that they don’t owe Carvana any money and it will be very hard to collect as a debt.

Booktrope• 4 years ago

Yeah, bankruptcy basically does not let anyone off the hook who owes the bankrupt company or person a debt. But collection is overseen by a court which definitely can mean that efforts to collect debt owed to the bankrupt party can intensify and are unlikely to end until money is collected.

cameronh90• 4 years ago

Over a decade ago, when I first left home, I bought a bunch of home appliances on finance. They never collected any payments, and a few years later, they went bankrupt. Nobody ever came after me and nothing ever appeared on my credit report.

It doesn't happen often, but it does happen.

pjbeam• 4 years ago

We sold my wife's old Versa for more than she paid new to Carvana about 2 years ago. I wasn't upset but definitely didn't seem sustainable??

brianshaler• 4 years ago

Yes, the unprecedented macroeconomic calamity that caused market-wide car prices to appreciate was not sustainable and is no longer happening.

sem000• 4 years ago

I think it should be very apparent to just about anyone that there aren’t enough programmers in the world to develop enough capable algorithms to buy and sell used cars or homes efficiently or profitably.

There are way too many nuances involved in such transactions that used car dealerships and the traditional real estate transaction model is never going away.

If there were any indication of it going the other way, used car dealerships would have gone out of business long ago. After all, you have been able to buy a used car privately through tons of websites or listing services without a middle man taking a profit for years. But the risk of doing so is too great.

SturgeonsLaw2• 4 years ago

I've only ever bought used cars through private sales, never had an issue. I always get my mechanic to check them out before going ahead with a purchase though, that has absolutely saved me thousands before.

yazzku• 4 years ago

The header image there with the tall rack of cars certainly makes "Carvana crashes hard" and "has come crashing down" more vigorous and vicious. Props to the author.

xnx• 4 years ago

The car vending machines are such a monument to failure, at least here in the Chicago area where all the ones I see are totally empty.

Finnucane• 4 years ago

I didn't even think those were real. I'd seen pictures, but I thought it was just for show. Like who would actually build that?

kevin_thibedeau• 4 years ago

They're used for ordinary parking facilities in dense cities.

coredog642• 4 years ago

They spent 18 months building one near my house, only to finish it as the company really started to go into the dumpster.

It's near the offramp for the dealer's row in my town, so I suspect that the Cadillac, BMW, or Mercedes dealership will buy it for pennies on the dollar as an advertising billboard.

arealaccount• 4 years ago

Bummer, buying from a dealer always feels bad. Would be great if a company could figure out a digital off the shelf shopping experience.

The last car buying experience I had the brick and mortar dealerships listed so many bait cars that online shopping was scammy/pointless.

ketzo• 4 years ago

Yeah, there's a lot of people here mocking Carvana, but the user experience is fucking phenomenal. (Yes, aside from the "user experience" of selling your car for more than it's worth).

Buying from dealerships is not something I ever want to do again.

Aunche2• 4 years ago

Carvana is basically a very poorly operated CarMax. You get a much better customer experience there, but you're also paying a premium for it.

anitil• 4 years ago

My understanding (from a poorly remembered Planet Money episode) is that this isn't a technical issue, it's a regulatory one. I'm not from the US and my memory is hazy so I don't know the details.

Maybe this episode - https://www.npr.org/sections/money/2013/02/12/171814201/epis...

mkhpalm2• 4 years ago

Go through car buying services then report the dealership to the car buying service when you encounter a bait cars and scams.

gnicholas• 4 years ago

Do car buying services do anything about these reports? It seems like pretty much every dealer bait-and-switches.

mlnhd• 4 years ago

good

eqmvii• 4 years ago

Carvana bought my car mid-pandemic without opening the trunk. That trunk definitely had a few surprises for them, or the new buyer...

What a business model.

treis• 4 years ago

without opening the trunk. That drunk

I'm intrigued...

bombcar7• 4 years ago

Movies have told me it’s always a dead hooker.

hn_throwaway_993• 4 years ago

I bought a used car from Carvana before the pandemic, and this is pretty sad news to me because after that purchase I vowed that all my future cars would come from Carvana. The buying experience was simply excellent for me, and I couldn't be happier with the car I bought. I figured I probably could have gotten a comparable deal slightly cheaper somewhere else, but I would have wasted a ton of time, and still would have crossed my fingers that I wasn't buying a lemon - any slight premium I paid to Carvana I felt was totally worth it.

I hope they can fix their financial issues (sounds like they just "bought high and are selling low") and their operational issues (in some places word got out that it was cheaper to just "buy" a Carvana car and then return it < 7 days rather than getting a car rental), because, at least for me, their purchasing experience was great.

mr90210• 4 years ago

Look up Joshua Fluke on YouTube, on one of his last videos he talks in details about the legal issues that Carvana has had.

lokar• 4 years ago

I’ve heard that before, and always wondered: how dealership owners are able to buy so much power in state capitals?

moralestapia• 4 years ago

The problem with Carvana's valuation is that car dealerships run on thin margins. It's very hard to make billions out of that.

KennyBlanken3• 4 years ago

...and this translated into very poor quality vehicles because they couldn't afford proper inspections and repairs (don't have to fix what you don't find! Let the customer sort it out! And be incredibly annoying to contact, so they maybe just go away...ie the Google model of customer service!) and their on-the-road staff were horribly trained. There are multiple videos out there of Carvana staff dropping people's "new" cars off the backs of the flatbed trucks.

I remember seeing the ads for them hiring delivery drivers and it amounted to "have a pulse? friendly? We'll train you to drive a large commercial vehicle and load/unload cars, wooo!"

If I remember correctly they were banned from car sales in multiple states, in some cases states banning them multiple times: https://www.google.com/search?q=carvana+banned+in+what+state...

SoftTalker• 4 years ago

This is the problem when SV startup approaches hit the world of physical products. This isn't software. To sell a car, you first have to buy one. You cannot create them out of bits and sell more at nearly zero marginal cost. Your inventory has a carrying cost. You're playing in a market. Carvana got caught buying high and having to sell low. Was there any securities trading firm or auto retailer experience on their management team or board?

freeopinion2• 4 years ago

I have several issues with your comment.

1. What makes you think car dealerships run on thin margins?

I don't know what typical margins are, but the owners seem to do pretty well. This may be despite low margins. But I'm reluctant to accept your claim without proof.

2. What qualifies as low margin? 1%? 10%?

3. It is entirely possible to make billions on low margins.

A dealer that makes $1000 per car can make $1 billion profit by selling 1 million cars. If the average car sells for $15k, a $1k profit would be a < 7% margin. See question 2 about low margins.

A little mom-and-pop lot in a very small town can sell 5-10 cars per month. It doesn't seem unreasonable for a huge national online dealership to sell 1 million cars.

4. What timeframe are we talking? Five years?

Carmax financials say they do more than $5 billion in a single quarter.

phphphphp3• 4 years ago

The good experience you had early on and the bad state of the company now are closely linked.

The story is always the same with this type of company: take a mature industry that is profitable on a unit basis because it’s boring and unpleasant, then build a narrative around some strategy to make it exciting (giant vending machines!) and get buy-in to spend huge amounts of money in pursuit of the narrative but eventually discover the only way to be profitable is to do what the mature industry players already discovered — but now you’ve got so much debt to service you have to cut even more corners and somehow manage to spend billions on becoming a worse version of what already existed and whatever goodwill you earned is burned.

There’s lots of room for businesses to improve on the boring legacy industries with low margins — like car buying and selling — but it requires careful iteration, it requires taking the established understanding and then building on it. Subsidising the cost of good-but-unprofitable service using investment dollars (Carvana was losing thousands per sale pre-pandemic) doesn’t build a sustainable business unless it’s part of a strategy.

avalys• 4 years ago

Yeah, exactly. "I loved Carvana because I bought a great car from them at a better price than the legacy players!" and "I loved Carvana because they bought my used car at a really good price!"

Guess what? Buying cars for too much money and selling them for too little money means they go out of business.

jacquesm• 4 years ago

Subsidising the cost of good-but-unprofitable service using investment dollars (Carvana was losing thousands per sale pre-pandemic) doesn’t build a sustainable business unless it’s part of a strategy.

Unfortunately that summarizes a fairly large fraction of the presentations aimed at VCs.

gmd635• 4 years ago

I think you can generalize even further and say that this story applies to most companies flooded with investor capital. Take Uber for example. The VC subsidies convinced a significant portion of people to upend their lifestyles and attempt to make money in an ecosystem where prices were artificially juiced by VC money.

It's ironic that free market types are completely for subsidies when the private industry does it, although public and private subsidies both have issues.

At least government subsidies have a benevolent intent usually. VC subsidies are usually about hiding the true market value of a product to attract customers who otherwise wouldn't have shown interest until it's time to crank the money milker.

hn_throwaway_993• 4 years ago

I'm not really sure I agree with your argument. It seems quite clear that what has really contributed to Carvana tanking over the past year was they vastly mispriced their product. What happened to Carvana is essentially exactly what happened to other companies that misjudged the effect of the pandemic, e.g. Zillow with their bad experiment with house flipping (paid too much for houses) and Bright Health (vastly underpriced their insurance due to impact of COVID).

But I want to emphasize, I would have gone to Carvana even if it were considerably more. The trusted, online-only buying experience is just something I'm totally willing to pay for, especially given how extremely awful the normal used-car buying experience is.

rhaway847732• 4 years ago

You see this with airlines.

People keep complaining about how flying has become so much more unpleasant.

But other than a small minority, the customers almost always pick lower prices over any improvements in service.

And the same is probably true for buying a used car. Folks may talk about how the experience is poor, but at the end of the day price is what will drive their purchase. So whoever gives the lowest price, which often translates to a worse experience, will succeed in the marketplace.

tristor• 4 years ago

I think you could generalize much further and just say this is what happens to companies that don’t understand the basic principle of CAC to LTV ratio. If it’s negative, when the funny money stops, it’s gonna be a rough ride.

BeFlatXIII• 4 years ago

I wonder what we can do as consumers to convince investors to make stupid decisions to subsidize unprofitable industries so we can enjoy cheap prices.

friendly_deer• 4 years ago

I was pattern matching Carvana to a company called Sidecar[0] this summer when I heard my friend say he bought a car for something like $5k less than any dealership in town was offering it for.

Sidecar was the "3rd company" that did ride-sharing in my city in 2014-2015, after Lyft and Uber. Somehow they were selling rides from any point in the city to any other point in the city for $1. I suppose it was getting subsidized by VC money; and I took probably $500 worth of rides for a year or so until it shut down.

[0] https://en.wikipedia.org/wiki/Sidecar_(company)

tptacek2• 4 years ago

For what it's worth, I felt the same way about Carmax, last year. Bought online, they drove the car out to me, and when a better trim of the same car popped up on their site 2 weeks later, I just traded it sticker-for-sticker no questions asked.

I'm sure I didn't get close to the best price, but I got better than dealership sticker for the make/model/year, and I lost zero time to the transaction.

faddypaddy34• 4 years ago

I have bought almost all of my cars from CarMax in the last decade. Even going into their dealerships in person is not a typical experience. There is no negotiation on price and the only "upsell" was their extended warranty. They are also hemorrhaging money currently and hopefully don't go the way of carvana.

hajile2• 4 years ago

Just one car auction company (a subsidiary of Cox) controls 80-90% of the market. If a dealer avoids junk, ungraded cars, then the quality is very standardized. As a result of a completely centralized pseudo-monopoly, actual acquisition cost is set to an extreme degree (car auction price ranges are so tight that top and bottom bids are usually within a hundred dollars of each other from very cheap to very expensive vehicles). In turn, this means that local pricing is going to be based on other stuff like time on lot (more time = more payments and interest), lot space cost, sales cost, etc)

Places like Carmax buy a car, mark it up $2k, and sell it making most of their money on financing and warranty/service stuff. They mark vehicles down something like $500 each month for two months then put it right back on the auction if it doesn't sell (so you'll generally get better deals from vehicles that have been on-lot a while). This is why they refuse to negotiate price.

You may get a slightly better price than the dealership, but not by much when you consider every single factor.

If you want the best possible deal, know the car you're looking for and offer a fixed finder's fee to a mom and pop used dealership to buy it for you. A lot of these smaller dealers will give you a good, fixed rate because it's guaranteed money to them without that normal overhead. It may not be strictly allowed (due to NDAs and such), but some may even allow you to help pick out the vehicle to bid on.

GekkePrutser2• 4 years ago

I wonder if it's possible for these concepts to really go big.

The problem is, there's a lot more lemons on the market then there's great deals. Nobody wants the car that doesn't start twice a week or that's been in an accident and has its chassis skewed.

These sites start out by promoting seller karma or something but even the best sellers have lemons to get rid of. At the start they probably just sell them elsewhere to keep their rating high. Eventually as these sites get so big you can't avoid them, the quality will inevitably drop because they capture too big of a market which just includes a lot of crap.

At the same time investors will want to see that exponentially skyrocketing line continuing so they'll be pushing to cut corners left right and center just as things get difficult.

I don't know Carvana as I don't drive much anymore but I assume the same story supplies here at least in some ways.

ethbr03• 4 years ago

Aka the AirBNB problem. In a nutshell, that you can't have a high quality growth company forever in an industry with a fixed supply of high quality items.

Initially, you grow like crazy and with great user reviews, as you're able to pick and choose the highest quality items.

Unfortunately, at some point you exhaust the supply at a given quality level, but your valuation mandates continued growth.

So you lower your quality requirements to obtain more supply, which only buys you a bit more time until you hit the next supply limit.

The only winning move seems to be stay private and accept there's a near-term cap on your revenue growth, after which you will grow much more slowly (at the natural supply expansion rate).

kreitje• 4 years ago

I bought one from them about 3 months ago and it was excellent.

I couldn’t get a local dealership to give me the sticker price of a car on their website without showing up in person. I expected all the extra fees they throw in to be hidden but all they would post was MSRP and to call for the price. I call and they pretend to not know the car I am talking about and need to go there to see the specific car. This was multiple dealers.

Carvana though showed me the price, shipping if any, taxes, tag, title before I even tried to buy it.

jjav3• 4 years ago

The buying experience was simply excellent for me

No doubt, because a company that operates at a loss on VC money and passes the savings on to the consumer, can easily provide a great experience/price.

Take advante of those companies while they exist, but be clear that they can't continue for very long. Either VC money runs out and they disappear or they go public and must start making a profit by increasing prices and slashing service.

mrnobody_67• 4 years ago

The writing was on the wall for quite a while here... the company is literally run by convicted felons.

Check out the short seller report -- https://www.sprucepointcap.com/carvana-co-update/

encryptluks22• 4 years ago

I can see how people that sold a car to Carvana for a great price are happy, but I imagine there are lot of people that ended up with a bad overpriced vehicle from Carvana as well.

badrabbit• 4 years ago

How about allowing smaller used car dealers to sell carvana inventory. Lot space is expensive but a lot of people shop online or on magazines before going in person anyways. It will be a good lure, just have the dealer make them wait until he gets the car from carvana while they checkout existing inventory. Carvana breaks even -ish and dealers make money on the financing side (they never make money on actual sale of the car only on interest anywayd).

I never looked into carvana but there are many small dealers that don't need you to have a good credit or even a job to get a car. They could use carvanna as cloud service, vehicle-as-a-service VaaS if you will lol.

I can't imagine buying a car at carvanna, I don't care much about test driving or getting pressured to buy by a used car salesman but the quality and pricing is too high and you can't bargain with carvanna but I can tell some no name used car lot salesman how I will be back and how much I need it, how I will bring people to him,etc... and get some flexibility.

I suppose it is the same people that get their cars repaired at name brand shops and at dealers that buy this way. I need a guy that only accepts cash for whatever reason and build rapport with that person so he won't mess it up to charge more. i do that because they usually "find" parts somehow (usually just salvage) and avoid expensive parts or b.s. charges because if who their customer base is.

I am used to this stuff then there are people trying to pass laws to limit cash usage! What a world.

coredog642• 4 years ago

I worked in this space at the turn of the century (Cobalt Group, now part of ADP). Dealers would grant access to their (usually) ADP backends that we'd scrape for inventory and then aggregate on websites (usually their own and maybe a larger hub). Today I'd say something like FB marketplace or Craigslist does that work. Smaller dealers post their inventory to Craigslist every day (or every week) and then Craigslist is the search engine. Unfortunately, at this price point, there's not enough margin for things like delivering cars, transferring across lots, etc.

e-clinton• 4 years ago

Carvana offered me 36k for a Subaru I had paid 40K for 3 years earlier… that was about 6k more than carmax offered.

Nifty3929• 4 years ago

Remember when Zillow tried getting into the buying/flipping business? This is that, but worse because Carvana didn’t star with a profitable car-appraisal and listing service first, and have no main business left.

Or maybe this is better actually, since it’s much clearer for investors: With Zillow, as an investor maybe I didn’t want to be in the home buying business at all. And now Zillow is burning my money by getting into it. If I had wanted to get into the home buying/flipping business I could have just bought Homevana stock. Carvana is clearly doing one thing. And if you want to do that thing you buy their stock.

millerj• 4 years ago

https://www.forbes.com/sites/johnhyatt/2022/12/08/carvana-ce...

geeB• 4 years ago

My experiences were so different from

as Carvana was able to undercut its brick-and-mortar competition with vehicle prices.

that I’m not sure how to make sense of it.

Right before Covid I was shopping for a used car, and I remember their prices being outrageously higher than dealerships. I’m talking saving a few thousands dollars just by taking the dealer’s initial price without negotiating.

Similar scenario just a couple of months ago, I was looking to sell and again reading how well they pay I got a quote… and it was less than half of the first number a dealer threw out (this was a really old and cheap car tbf, I don’t expect it to be that bad for more expensive ones).

Either way, I always wondered how they possibly stayed in business, since it seemed weird that so many people would pay so much for the privilege of being ripped off a lot by some far away corporation, instead of having a person in front of you ripping you off a little.

I deeply hate the dealership experience, but the bad feeling/buyer’s remorse wears off in a couple of days and I’d rather enjoy the extra money in my pocket.

It’s very illuminating to me seeing the comments in this thread shedding some light into what people liked about Carvana and how they were being too generous with returns and losing money at scale. That makes some sense at least. But whenever articles talk about their good prices, it feels like a buried ad.

As Carvana crashes, used car dealers, not buyers, stand to win big

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