Why Carvana is Not Good for Auto Dealers or Consumers
Traditionally, if you’re interested in buying a buying a used car in the Bronx and Yonkers, you would go to a car dealership located either somewhat close to your home or to a dealer that has a certain car you’re looking for. You may conduct a search online and browse the various marketplace websites that host listings for car dealers. Sites like Cars.com, Autotrader, Car Gurus, and the likes offer dealers a subscription to advertise their cars on these websites. A dealer will also spend money on paid search ads and SEO to drive traffic to their own website through popular search engines like Google and Yahoo!
As with many industries, the online marketplace has grown exponentially for buyers and sellers. The auto industry, while making progress in the digital world, has lagged behind other online retailing. However, there’s a reason for this: buyers want to see the car, feel the car, drive the car and be able to get the car serviced by the dealer if there’s something that needs to be addressed. While it may be a piece of cake for someone to buy a T-shirt online or many other things, a car is just not that simple. It’s a major purchase and nothing can be more frightening than to buy a car that doesn’t work right.
When you purchase a car at a local dealer, you don’t only get to look at the car and drive it, but you can feel comfort in the fact that you can simply bring the car right back to the dealer to get something fixed under the dealer warranty period. You may also be able to negotiate the price of the car albeit negotiations these days seem like a thing of the past since it has become super competitive in the online marketplace. This leads us to the next point: companies like Carvana are dominating the auctions and leaving traditional dealers in the dust when it comes to acquiring vehicles at the auction. This is driving up the cost for all dealers who depend on auctions to purchase vehicles. In turn, those costs are being passed on to consumers! Dealers bid against each other a the auctions and it seems as though companies like Carvana are making it difficult for dealers to acquire inventory at reasonable prices. In many cases, the car gets sold at auction at several thousands above what they aim to buy the car for. Carvana will buy in such big volume that the cost of the car really isn’t a problem for them as they will average out the cost of all the cars purchased. At the same time, being that they are a publicly-traded company with high growth expectations from investors, they must carry a lot of inventory to drive growth. Meanwhile, the advertised price on these cars also seems to be a problem. With dealer margins shrinking on used cars, Carvana seems to make the problem worse as they will do anything to move a car- regardless of profit. While Wall Street seeks profits, they seem to be content with sales growth- not profits. Carvana has lost massive amounts of money since its inception. Those losses have only grown exponentially since becoming a public company.
As we’ve seen with retail giants like Walmart, Costco, and Target, Carvana seems to be heading down a similar path: push out the traditional retailers at any cost. By the same token, online-only retailers like Amazon have proven that they will do anything possible to drive prices down regardless of profit and regardless of whether or not it’s good for the vendor supplying the product.
While technology is good, Carvana seems to be more of a disruption for auto dealers than a technology that helps consumers. There are a few advantages to buying through them such as buying from your couch and a no-haggle experience, but the disadvantages are far greater. Not being able to test drive, smell the car, look at the car and negotiate the price as well as waiting for the delivery of the car can all be major disadvantages. On top of that, the convenience is not exactly a convenience if you have service issues or don’t like the car.
At the end of the day, consumers should steer away from buying a used car online to protect themselves from the inconveniences. They should also realize that these online companies are hurting the consumer on many different levels that are disguised by the convenience. Carvana is driving prices up where no one wins in the end.