Start-ups Are Transforming The Used Car Business

Tesla is pressuring new car dealers with its direct to customers sales model. Now, several regional start-ups are challenging how used cars are sold. If they are successful, traditional used car dealers could be feeling the heat soon, too.  The new companies have catchy names like Beepi, Shift, Carvana, and Vroom.

Used car dealer

Owen Savir is a co-founder of Silicon Valley start-up Beepi. “Companies like Amazon and Zappos taught us that you can buy a pair of shoes online and if you don’t like them, you can just send them back, get your money back and it’s easy and it’s simple,” he says. “So people now trust, if a company says, ‘Buy a car online and if you don’t like it, return it,’ they believe you. Of course, you need to keep your word and be a good company, but the notion is there.

Toby Russell, head of product at Shift, agrees. “Like Amazon took the Internet and applied it to the retail space, we and a bunch of other companies are taking technology and looking to apply it to the largest retail space in the world, the U.S. auto market,” he says. His company acts as a conduit for consumers buying and selling used cars and trucks, mainly in San Francisco, Los Angeles and Washington, D.C.

Shift helps customers deal with the paperwork needed to transfer titles and get their cars registered. It also offers extended warranties through companies it partners with and has launched its own financing arm, Shift Finance, which is a licensed lender in the markets where Shift does business. “The thinking behind that is we’re really passionate about getting people in the right car at a low price,” Russell said.

Are dealers worried? Not yet. Alan Haig of Haig Partners in Fort Lauderdale, Fla., says these start-up companies don’t represent a significant threat to the profit margins of traditional franchised new-car dealers — yet. Franchised dealers are successful because of their revenue and profit balance across new vehicles, used vehicles, parts and service and finance and insurance, he says.

“Parts and service is critical for profitability,” Haig said. “These used-car operations, to my knowledge, don’t have any fixed operations. They are making a living on used cars. That is a relatively low margin business when you apply the cost of acquiring the car, transferring the car, cleaning the car up, advertising. It’s not a lot of money per unit.”

That may be true. But what Haig overlooks is that traditional dealers have made themselves a target by treating customers  poorly for generations. Most people would rather have a root canal than shop for a new or used car. Having to deal with sharpies and charlatans makes most people want to go home and take a shower. Dealer service and parts departments are almost universally despised. If companies like these can show people a better way, used car shoppers will beat a path to their doors.

Source: Automotive News


Steve Hanley

Closely following the transition from internal combustion to electricity. Whether it's cars, trucks, ships, or airplanes, sustainability is the key. Please follow me on Google + and Twitter.