Cutting Edge: Virtual used-car dealers gain traction
A move from transit-rich New York to car-crazy Los Angeles prompted Manuela White to spend more than $17,000 on a used Toyota Corolla sight unseen with just a click on her laptop.
White, 25, purchased her car from Beepi, which along with start-ups that include Carvana, Shift, Vroom and others is creating a new digital business model selling and buying used cars. They provide a virtual showroom and handle the marketing and much of the legal paperwork online, guaranteeing minimum prices to sellers and full refunds to buyers if they regret their purchase within a limited time span.
These companies are bridging a disconnect in auto sales, said Anant Kamat, an automotive expert at the Accenture consulting firm.
FOR THE RECORD:
Used-car apps: In the Aug. 2 Business section, an article about digital used-car sales misspelled the last name of Alejandro Resnik, chief executive of Beepi, an online used-car seller, as Resnick.
“A lot of people say they are disappointed with the way the auto industry approaches retail,” Kamat said.
Trained by online purchasing experiences, consumers increasingly look for convenience when shopping, he said. An Accenture survey found that 75% of U.S. respondents would consider making car selection, financing, price negotiation, back office paperwork and home delivery completely online.
That’s how White approached her first car purchase — a 2012 Corolla with 12,400 miles on the odometer.
The aspiring actress wanted a clean, late model vehicle with low mileage she could use to earn money as an Uber driver while awaiting auditions.
“The good thing about Beepi is that you can have the car for 10 days or 1,000 miles and you can still get a full refund,” White said. “That made me trust the whole process.”
Still, that didn’t guarantee White would like a 2012 Corolla, so she went to the closest Toyota dealer and test drove the car from the same model year.
That validated her choice but left the sales staff with little opportunity to make the sale. This was a reconnaissance mission only.
“The deal was not as good as the Beepi deal,” White said. “The car had more miles and they were asking a lot more.”
Most of the cars for sale on Beepi are owned by individuals who might otherwise have traded them for a new car or sold them through a classified ad, Craigslist or Autotrader.
Potential sellers schedule an appointment for a Beepi Inspector to conduct a two-hour, 185-point vehicle inspection and photo session. If the car passes, the owner gets a price, the car is listed and a sale is guaranteed in 30 days. Beepi marks up the car 3% to 9% more — depending on the vehicle — and keeps that for its profit.
The company says it will pay $1,000 more than a dealer’s best offer, but to enforce that a customer must have a written or electronic offer to present Beepi.
Tanner Kidd, a Rancho Santa Margarita bookkeeper, recently sold his 2014 Toyota Corolla via Beepi because he wanted to upgrade to a new car with a larger engine.
Beepi gave a $16,900 quote but Kidd, 23, already had a written $16,000 offer from CarMax, which forced Beepi to raise its price to $17,000. He received a $250 bonus for accepting the price right away.
“I was pleased with it because it beat my payoff number by $50,” Kidd said. “It was an easy and simple process.”
Buyers go to the site, click on a car and see a no-haggle price. They peruse extensive photos of the car’s exterior and interior and read a vehicle history and condition report. Shoppers who hit the “Buy Me” button can pay with a personal or cashier’s check, a bank wire transfer, a loan through Beepi or finance the car using up to five credit cards. They can even pay with Bitcoin, the virtual currency.
Alejandro Resnik, Beepi’s chief executive, said the sales model alleviates many of the thorny issues that come up buying and selling cars. Sellers don’t have to worry about payment, offering test drives and legal paperwork.
FOR THE RECORD
Aug. 3, 12:23 p.m.: An earlier version of this article misspelled the last name of Alejandro Resnik, Beepi’s chief executive, as Resnick.
“Buyers don’t have to drive anywhere, they don’t have to negotiate in a high-pressure environment. We aren’t trying to sell you additional products,” he said. “The Internet isn’t going to treat you differently if you are a woman or minority.”
Carvana has a different model.
It buys cars, shipping them to depots in Atlanta and Dallas where it reconditions the vehicles. It buys up vehicles from individuals, auctions and automaker finance companies disposing of previously leased vehicles.
Individual sellers go to its website, fill out information about their car and get an offer contingent on an inspection.
People are “remarkably honest” about describing their vehicles, said Ernie Garcia, chief executive of Carvana. “Less than 1% of the time we will have to adjust the value of the car.”
Carvana picks up the vehicle and delivers a check within 24 hours. It then lists the cars online, offering free delivery to people living within 100 miles of its hubs in Dallas; Atlanta; Nashville; Charlotte, N.C.; and Birmingham, Ala. Buyers elsewhere pay predetermined delivery fees, depending on their location.
These virtual car dealers operate with low overhead, an economic advantage over their bricks-and-mortar competitors, Kamat said.
They don’t need showrooms and service bays. They don’t employ general managers, finance managers and sales staff.
The typical car dealer spends about $2,000 selling a used vehicle, and that has to be built into the asking price, Garcia said.
“We can price cars at $1,500 less and still make just as much money as traditional dealers,” Garcia said.
That’s why the auto industry is paying close attention to these digital start-ups, Kamat said. Every dealer he said he has talked to in the last six months has asked about Carvana and Beepi.
The companies are growing, but it was hard to gauge by how much, he said.
Beepi doesn’t release any financial data. Carvana went from $5 million in revenue in its first year to $40 million in revenue last year and is on pace to hit $120 million this year, Garcia said.
“The market is huge and there is a place for Beepi, Carvana and Shift and others, just as there is a place for our members, independent dealers and private party sales,” said Brian Maas, president of the California New Car Dealers Assn.
In California, the nation’s largest car market, new car dealers sell about 700,000 used cars annually, and that’s only 20% of used vehicle sales, Maas said. Independent used car dealers sell another 20% and the rest, 60%, are private party transactions.
He believes there are favorable conditions in the auto industry for these start-ups now, but they won’t last.
Online sales work best for late-model used cars — the ones with the highest profit margins, Maas said. There’s been a shortage of these vehicles for several years, an echo of the sharp drop in auto sales during the recession and first years of the recovery. But now that the industry is selling 16 million to 17 million vehicles annually, the supply of the most attractive used cars is building and prices will ease.
“That’s going to make it harder for these new entrants,” Maas said.
White, however, believes more consumers will gravitate to online car buying.
“I have had the car for a little more than a month and I love it,” White said. “The purchase was wonderful.”