According to the report on used car dealers in the US published by IBISWorld earlier this year, the used car industry is estimated to grow 2.9% annually through the period 2012 through 2017 to $116 billion in revenues. The market has traditionally been dominated by physical dealership stores, but has, as of late, seen several online players as well. But not many of these have really managed to succeed. Carvana is one player who appears to be ready to test stock market appetite for a business model that has yet to turn in profits.
Carvana’s Offerings
Phoenix-based Carvana was founded by Ryan Keeton and Ernie Garcia in January 2013 as an online option for used car sales. But unlike other online used car websites that act as marketplaces to connect buyers with sellers, Carvana takes care of the entire end-to-end process of car sales. It has integrated into its platform buying, reconditioning, and financing auto sales to its customers. It follows a more capital-intensive approach of purchasing pre-owned vehicles directly from consumers, reconditioning them, and then selling them to the next buyer. Carvana believes that the model offers it better control over pricing and inventory of the vehicles.
It also offers a rather fancy and convenient car buying experience. Its platform allows buyers to conduct research and identify a vehicle, inspect using a proprietary 360-degree vehicle imaging technology, obtain financing and warranty coverage, purchase the vehicle, and schedule delivery or pick-up. The transaction time needed for the completion of securing financing to completing a purchase and scheduling a delivery online takes as little as 10 minutes on its platform. The buyer can elect to have the car delivered or can pick it up on their own. The delivery of the car can take as little as a day as Carvana uses its proprietary algorithm to optimize its nationwide pooled inventory of over 7,300 vehicles. For pick-up services, Carvana operates vending machines, which are steel and glass buildings that dispense the cars that the buyer has paid for. While the idea may appear strange to some, Carvana believes that the model helps it manage the cost of delivery.
