Carvana new sales strategy turns dealership into ‘playground’
Carvana’s new vehicle franchise for Stellantis includes personalized consumer displays and a vehicle “playground” for each of its core U.S. brands.
Courtesy of Carvana
DALLAS — to the caravan It aims to carry its online strategy for second-hand vehicle sales to new car and truck sales.
But don’t expect the company to sell you a vehicle at one of its seven prices. Stellantis franchise dealerships.
Instead, the online vehicle retailer said it plans to use such dealerships as service locations, test drive centers and potentially “playgrounds” for consumers to decide which vehicle they want to purchase through Carvana’s online platforms; This marks a stark contrast to the way traditional franchise dealers handle new products.
“Every car we sell, whether used or new, is online,” Tom Taira, Carvana’s president of special projects who leads new vehicle operations, told CNBC during an interview at its Texas franchise. “It’s such a natural difference. Even when you go into the store, you’re buying it online, and that makes a big difference in how people think about it.”
Thanks to second-hand vehicle sales, Carvana has become the most valuable automobile retailer in the United States, with a market value exceeding $70 billion. According to Taira, Carvana’s goal in the new vehicle business is to grow its market share and customer base, as well as assist in used vehicle sales through trade-ins and other means.
If the company is successful, the strategy could create a ripple effect across the U.S. dealership model, which the National Automobile Dealers Association says includes 16,990 retailers. Exceeded $1.3 trillion in sales last year.
This week marked the first time Carvana has spoken publicly about its plans for new vehicles since purchasing the first Chrysler-Dodge-Jeep-Ram franchise store for Stellantis in Arizona early last year. Its network has since grown to other Carvana popular markets in Sacramento and San Diego, California; Dallas; Atlanta; Cleveland; and Boston.
“When we started new cars, we said the only way to make it happen was to keep it going the Carvana way. We actually sell the cars the same way we do to used car customers,” Taira said during a media event at his Dallas location. “Why break something that already works?”
Customers visiting Carvana’s franchise dealership in Texas are encouraged to use their smartphones and QR codes to navigate the online vehicle retailer’s location and new car purchasing process.
Courtesy of Carvana
Carvana spent about $171 million to acquire new Stellantis vehicle franchises, excluding its most recent retailer acquisition in Ohio, according to public records. The company declined to disclose additional investments in stores to implement its strategy.
Taira and the company also declined to disclose Carvana’s new vehicle sales so far or future expansion plans for additional brands or other Stellantis franchises. CNBC previously confirmed that the company was rapidly increasing new vehicle sales, including a location in Arizona becoming Stellantis’ best-selling dealership in the country.
“As long as we can go out and increase the share and grow the pie, we believe it’s worth it for us,” Taira said. He declined to comment on whether the new vehicle business is profitable.
As first reported by CNBC, in order to integrate new vehicle sales into its existing website, Carvana was approved as a certified website provider for Stellantis, rather than necessarily using third-party companies. Many franchise dealers said they believed this was a unique advantage for Carvana.
Carvana, like other large public companies, operates as a “corporate owner” of its brands, Stellantis told CNBC. Lithia And Auto Nation.
“We apply the same consistent standards and criteria to all of our dealer partners, and any organization that meets our qualifications is eligible to operate as a franchisee,” the automaker said, adding that Stellantis “certifies vehicles and services that will enhance our program and benefit our network. All certified providers must complete a stringent onboarding process and meet program standards and requirements.”
Test drives, vehicle ‘playground’
Carvana replaced its traditional franchise dealership car lot at a Dallas facility with a “playground” where each Stellantis brand has a theme. Chrysler minivans have football nets.
Michael Wayland / CNBC
Carvana is using a location in Dallas as a testing center for its push into new vehicle sales. From the outside, the facility looks like a traditional Stellantis dealership, but the consumer vehicle purchasing process and the responsibilities of its employees are unique.
Booths and sales offices are being replaced by sofas and chairs. There are no finance or insurance departments, and instead of an army of commission-based employees, the facility has hourly employees to assist customers if they want help.
The experience is intended to be as self-directed as the customer desires. By scanning QR codes on 10-foot by 10-foot screens inside the building or on rides and displays outside, shoppers can personalize a vehicle, learn about a product’s features, and take test drives before deciding whether to buy anything. If they decide to buy something, it’s online and not through a salesperson, the company said.
There are approximately 50 vehicles on the playground, separated by brands, each with a theme. Jeep has an off-road display. Dodge has race tracks, including a Carvana-themed Charger pace car and part of the traditional track fence barrier. Meanwhile, Chrysler minivans have football nets, and Ram’s niche is truck-centric.
Customers visiting Carvana’s franchise dealership in Texas are encouraged to use their smartphones and QR codes to navigate the online vehicle retailer’s location and new car purchasing process.
Courtesy of Carvana
Carvana isn’t committing to expanding this experience to other franchised dealer locations, but Taira told CNBC that the overall online sales, vehicle testing and service process is expected to be consistent across locations.
“I think the business case and the case for additional stores are emerging from this location first,” he told CNBC, adding that the store was built in weeks. “Is it important for us to do a second launch? No, I think the important thing is that we do it right. … There’s no giant plan to build test drive centers everywhere.”
Vehicle inventory restrictions
Once a customer decides to test drive or even purchase a vehicle, the process can become more complicated depending on the model the consumer wants.
Taira said the company chose to acquire the Stellantis dealerships because of the automaker’s wide range of brands and product diversity; This can be a double-edged sword when it comes to consumers finding the exact vehicle they want to test drive or purchase.
Unlike a traditional dealership that stocks vehicles for customers to test drive before purchasing, the playground at Carvana’s Texas facility has about 50 display cars, with twin vehicles available for test drives. As of Wednesday morning, nearly 3,000 new vehicles were available for sale nationwide, compared to more than 60,000 used models. According to their website.
This means that a customer may not be able to take the exact vehicle or model they are purchasing for a test drive, but the online process tries to match the best possible test drive vehicle to what they want. It also explains what is the same and what is different.
Five-year shares of Carvana.
Looking at the Texas location’s system for vehicles like the $87,000 Ram 1500 RHO performance model, the closest thing available for a field test drive was the nearly $61,000 Ram 1500 Big Horn; It has the same interior and four-door configuration but no other features are matched, including its performance engine.
This is why traditional automotive dealers have large vehicle inventories, especially for pickup trucks with multiple build options and a wide bandwidth of performance features.
Taira said Carvana continues to incorporate lessons learned from its more than a year of experience selling new vehicles into its daily operations. He said the company is learning which vehicles it needs to keep in stock and is working to make sure customers know they’re buying a new vehicle rather than a used one.
“We’re going through all this technology. This is brand new,” Taira said. “All of this is active, meaning the amount of progress we’re going to make over the coming days, weeks, months.”
Taira said the company prioritizes new vehicle sales to local customers as it does with used vehicles to avoid additional costs, but uses its nationwide logistics network and more than 100 U.S. Carvana locations when necessary.
Carvana will service vehicles
Before Carvana announced its new vehicle plans, the top question for Stellantis’ franchise dealers and Wall Street analysts was how the company planned to service the new products it sold.
For now, the company will operate its service departments operationally like a traditional franchise dealership, but with a guiding strategy of transparent, haggle-free pricing and a “hassle-free” customer experience, Taira said.
“They’re traditional as it relates to how the service is actually delivered. This is a traditional setup in that sense,” he told CNBC. “That’s what we do… we believe in the same principles regarding service that we do in selling cars.”
A map with a QR code shows the Jeep vehicle area in the vehicle “play area” at Carvana’s franchise store in Dallas, Texas. Each vehicle has a number and an accompanying QR code to obtain information about the vehicle.
Courtesy of Carvana
At the end of the day, selling cars is Carvana’s core business, but vehicle maintenance has historically been a lucrative market for franchised dealers, as well as customer financing, which Carvana has always focused on for its own business.
Similar to its used vehicles, Carvana currently only accepts cash or offers financing through the company itself, including selling the consumer auto loans it originates to institutional investors and partner banks. Allied Financeto maintain liquidity.
Taira did not rule out the possibility of Carvana offering leasing or using Stellantis’ financial services, which are highly profitable for automakers, but said the offerings should be seamlessly integrated into existing online sales platforms.
“One of the things that makes this, this experience, great is the things we already know. What we already know is the system we have in place,” he said. “That doesn’t mean integration isn’t something we will be part of our learning and experiences going forward.”
