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Car Buying Tip: Check Out Carvana

Car Buying Tip: Check Out Carvana


Asit Sharma: Brief overview if you’re not
familiar with Carvana, this company allows you to complete an entire
car buying experience online. This is amazing to me, being somewhat
middle-aged, as I often joke about. I have a young friend who I’ve mentioned on
this show before, his name is Brandon Stokes. He’s a millennial investor. I learn about
these forward-looking companies from him. I first heard about Carvana from Brandon,
who had just bought a used car through this service. It’s very difficult for someone with my experience
of car buying, used to going in and haggling with the salespeople, and then having to go
sit at the desk and work out if their financing is better than what my bank has, to think
that you can search for a car online using Carvana’s technology — they have a patented
360-degree photo virtual tour of each vehicle. You can look at the car report online,
see any spec that you want. Then, you can have financing offers presented
to you very quickly online from Carvana. You can finance the used
vehicle through them. You can see your contracts within minutes
online and sign them, if you want, electronically. Your car can be delivered. Or, if you live in a city in which Carvana
has its patented car carousel, you can go for this show, which is quite
incredible, it’s a car vending machine. We have one in Raleigh,
so I drove out there to look at it. Really elegant, transparent building. The car that you’ve ordered will come out
of the car vending machine and you can drive it home. That’s the service in a nutshell. It removes all of the human interaction,
except for the touches that you want. You can call up Carvana
and get sales assistance. People are very friendly when you
go to the dealership to pick up your vehicle. But you can see how this
appeals to the millennial mindset. We’ve talked about so much on this show how
millennials, the younger generation, loves to conduct business through an app. It’s not that they don’t want to interact
with other human beings, [laughs] but they appreciate the convenience of being able to
do everything in a transaction online. This is a service geared towards a younger
generation, which is only going to have more purchasing power as time goes on. Vincent Shen: I’ll say that I drove by one
of these Carvana Vending towers for the first time, actually, just a few weeks ago.
There’s a location near D.C., in this area. It’s really cool-looking. I didn’t realize — again, not having followed
the company at that time — that these were popping up. I think there’s 14 of them currently
in the U.S. It looks really cool. I looked up some videos on YouTube of what
the pickup process is like if you buy a car and you go to one of
these Vending towers. They give you this big coin, you drop it in
a slot, and then the car comes down kind of like a conveyor belt. Very cool. Worth checking out on YouTube, get a
sense of what that experience is like. I think it’s great for building the brand
and offering something very unique and fun for car buyers in what is historically a stressful
experience, when you’re going to a used car lot and doing it that way. Based on some of the recent acquisitions that
the company has made, the key opportunities that management tends to bring up for Carvana,
their singular focus here, as you’ve alluded to, is to streamline the used car buying
experience so it’s not something people dread. The used car salesman trope is still
something people joke about for a reason. With Carvana, you can do
all this shopping from your couch. You look through an
inventory of over 11,000 vehicles. There’s that 360-degree virtual tour of the
interior and exterior that you mentioned. They even highlight any
defects on the car in that. Once you’ve made your choice, you can complete
the checkout process in as little as ten minutes. Carvana can handle the financing for your used car.
They do that for the majority of their buyers. The car can be delivered as soon as the next
day, and every car comes with a seven-day money-back guarantee, so you can
return it for any reason for a full refund. I’ve only gone through the car buying process
twice so far in my life, but that sounds like a pretty sweet deal, frankly,
compared to what it used to be like. On the flip side of that, I’d like to pivot
now to talk about a little bit of the supply chain for Carvana, and how this
business model proves out in the financials. The company acquires its inventory from its
own customers, from auctions, and from rental companies with these big fleets. In the process, they screen, they analyze
these potential units to determine the right pricing, how they fit into their existing inventory. The company mentions that every car they source
from an auction to sell to retail customers is purchased sight unseen. This is an example of the company’s very strong
processes and data at its disposal to make smart purchasing decisions
for its inventory supply. For each vehicle, CEO Ernie Garcia said
Carvana will put about $1,000 of parts and labor into the car at its inspection and reconditioning
centers before capturing photographs, and then the imagery that it uses
to list the vehicle on its website. Once a car is sold, we mentioned how it can
be delivered directly to you, you can go to the Vending towers,
there’s some optionality there. Everything that I’ve described so far,
that’s for the retail side of the business, which makes up the lion’s
share of Carvana’s top line. Something to keep in mind is, the company
will also sell vehicles via wholesale channel at lower profit margins. Overall, if you’ve been thinking about how
all of this pieces together in terms of the buying experience, in terms of how
Carvana operates on its own, you’ll notice that from this description,
Carvana is a good example of vertical integration. Every step from procurement to fulfillment
happens within its own ecosystem. As a result, something that company also
mentions is, they gather a lot of data, and they use that to inform how they approach new markets,
how they design the online shopping platform experience, and a lot more.

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