Car shoppers really don’t like negotiating. That’s allowed fixed price retailers like Carmax and Carvana to take an increasingly larger slice of the used car market. Carmax is still performing well, but the real mover and shaker is Carvana. The company is opening new stores and experiencing substantial growth. Carvana vending machine, coming to a city near you? Probably.
Carvana works like any other online retailer. You find whatever car you want online, buy it, pay for it, and wait for delivery. Or you can pick it up yourself. That’s undoubtedly one of the reasons why it’s so popular. All of the paperwork is completed online too, unless you finance through your own financial institution. There’s a 7 day money back guarantee if you don’t like your purchase. That last part is definitely crucial to Carvana’s growth, as the company operates without any retail locations whatsoever, unlike Carmax.
Carvana is putting more effort into buying cars too. That effort has probably contributed to increased sales too. Again, buyers don’t have to leave their house to get a viable offer from the company. Based on a limited test of cars owned by my family, Carvana’s trade in offers seem more than fair. Plus, the odds are good that the average buyer is within Carvana’s operating range. The company now serves 146 markets and can accommodate 67 percent of the American population. Their revenue has grown by 100 percent every quarter since 2013. Carvana brought in $1.1 billion in revenue last quarter, a figure that beat expectations.
Carvana is currently worth about $14 billion. It’s not clear if that figure will rise substantially, but investors are anxious that the company has yet to turn a profit. That’s not as bad as it sounds, because the company is still expending significant capital to sustain its growth. They’re also getting closer to being in the black each day despite the continued push. In any event, there is still room to grow. The American used car market is extremely fragmented. According to The Motley Fool, the top 100 automotive retailers account for just 7 percent of the overall market. Carmax is the largest retailer and even they’re only at 2 percent.
The situation seems similar to how pizza restaurants operate in the NYC metropolitan area. Basically, pizza demand is so high that there’s plenty of room for corporate chains and independent establishments to coexist. Carvana probably won’t slow down anytime soon. But the question remains: Will these relatively new used car retailers fundamentally alter the used car market? Based on the available data, that seems unlikely. That being said, they do offer customers increased access to used cars and a viable alternative to buying cars at a traditional dealership. CC’s own Kyree Williams purchased his 2015 Jeep Grand Cherokee from Carvana. With the company’s trajectory, he probably won’t be the last.