How Carvana’s expansion to new vehicles could reshape the U.S. market
A Carvana sign and autograph vending machine in Tempe, Arizona.
Michael Wayland | CNBC
After becoming one of the largest used car retailers in the United States, to the caravan is expanding into the new vehicle market.
The company has quietly acquired seven new vehicle franchises since last year. StellantisChrysler, Dodge, Jeep and Ram brands, including a store in Arizona that has become the automaker’s largest U.S. outlet
Dealers and industry experts said they believe the move could significantly disrupt, if not reshape, the century-old new vehicle dealership system.
“Carvana’s entry into the new vehicle franchise business could be one of the most disruptive forces auto retailing has seen in the U.S. market in decades,” longtime Wall Street analyst and automotive consultant John Murphy told CNBC.
US franchise franchise system – includes 16,990 retailers Exceeded $1.3 trillion in sales According to the National Automobile Dealers Association last year, there has been a historical reluctance to change. But dealers have become more adaptable in recent years as a means of survival, including during the pandemic and epidemic period. publicly traded franchise groups.
Carvana’s first new car dealership for Stellantis in Casa Grande, Arizona, has grown rapidly. The company sold more than 700 new vehicles last month, according to Stellantis figures shared with dealers and provided to CNBC.
That has made it the best-selling store nationally and compares to the store’s monthly sales average of about 30 to 50 sales before Carvana acquired it early last year. Wall StreetJournal.
Carvana and its CEO, Ernie Garcia, declined to comment on details of franchised stores or businesses ahead of this week’s media event, where the retailer is expected to announce its plans.
Carvana: From vending machines to the online used car leader
Locations, many of which bear Carvana’s signature Large car vending machines have historically served as pickup and drop-off points where customers could pick up vehicles they purchased online or deliver vehicles they sold to the company. Until last year, these vehicles were largely used cars, trucks and SUVs brought in from auctions and individual consumers.
The addition of the new vehicle business not only brings additional revenue to the company, it also opens up other ways for Carvana to more easily purchase used vehicles from its new vehicle customers and through private auctions open only to franchised dealers.
“This is a major game changer in the secondary market,” Murphy said of private auctions. “If this spreads to other brands, that will be an advantage.”
Hollywood, Florida, Carvana car dealership, automatic car vending machine building selling used cars, delivery truck.
Jeff Greenberg | Universal Images Group | Getty Images
It also helps Carvana better leverage a vehicle’s entire lifecycle. The dealership model consists of four main growth areas: new, used, parts and service, and finance and insurance.
Carvana previously covered used sales and F&I, including selling its consumer auto loans to institutional investors and partner banks. Allied Financeto maintain liquidity. The addition of new franchises is expected to expand Carvana into other areas.
“I think once they stabilized their core business, they realized there was a significant amount of revenue and gross profit opportunity that their business model had not anticipated by looking at the franchise model,” said Brian Gordon, president of franchise consultant and broker Dave Cantin Group.
Dealers adapt or become ‘irrelevant’
Despite Carvana’s current status, including a market cap of over $70 billion, significantly higher than Stellantis’, there are challenges in selling new cars compared to used cars.
Unlike used vehicles, which Carvana specializes in selling online, the sale of new vehicles is subject to more regulation on a state-by-state basis. Franchisees also act as business partners of most automakers operating in the United States
In some states, such as Michigan, the only way to legally purchase a new vehicle is through a franchised dealer; This is something like direct-to-consumer companies. Tesla’s And rivya they struggled with varying results.
Annual Study conducted by Cox AutomotiveHe found that most buyers who support franchise car dealerships don’t want a completely online purchase or a completely in-person transaction. They want a blend of online convenience and in-store interaction.
Franchise dealers also must comply with many more regulations and rules from automakers. These range from showroom layouts to what brands they can sell in specific stores, vehicle allocations defined by the automaker, and service and repair requirements that Carvana does not currently offer to customers.
Not all of these are mandatory, but many automakers incentivize retailers through vehicle allocations as well as financial incentives to offer such services and meet their needs.
Carvana already works a little differently than most dealerships; because Stellantis certified it as a certified website provider for the automaker; That means it doesn’t need to go through an approved third-party company, according to four people familiar with the decision who requested anonymity to speak about nonpublic matters.
“It’s out of desperation,” said a Stellantis dealer who asked to remain anonymous so he could speak freely about the automaker, which has lost much of its U.S. market share in recent years. “This gave Carvana the opportunity to enter the new vehicle space.”
Carvana, like other large publicly traded companies, operates as the “corporate owner” of its brands, Stellantis told CNBC. Lithia And Auto Nation.
“We apply the same consistent standards and criteria to all of our franchise partners, and any organization that meets our qualifications is eligible to operate as a franchisee,” the company said, adding that Stellantis “certifies tools and services that will enhance our program and benefit our network.” All certified providers must complete a rigorous onboarding process and meet program standards and requirements.”
Carvana’s push into new vehicles and rapid growth has been a point of contention between Stellantis’ existing dealers and the company, according to Stellantis National Dealer Council President Sean Hogan.
Hogan said competition is always good for the consumer, which is why the franchise dealer model was created, but there are many significant questions about Carvana’s new vehicle strategy.
“I wonder what their strategy is, and I think competition is good in the long run. So if they’re doing something better than us, then we’re going to have to adapt, otherwise we’re going to be irrelevant,” said Hogan, vice president of Sierra Auto Group in California.
Inside J.D. Power’s annual US Sales Satisfaction Index For franchise dealers ranking their purchasing experiences, three out of four of Stellantis’ core brands (Chrysler, Dodge and Ram) were below the industry average.
The Amazon of used and new vehicles?
Although Stellantis says it treats itself like other dealers, it is not a traditional auto retailer like other large publicly traded dealers like Carvana, Lithia or AutoNation. It operates almost exclusively online and has a large network of physical facilities supporting it.
Carvana launches nationwide logistics and processing company for similar vehicles Amazon and back-end operations for processing and shipping consumer goods.
“They have a pre-built infrastructure digitally, physically and logistically, which probably gives them an advantage over large, multi-brand public companies,” said Larry Dominique, a longtime automotive executive and industry consultant.
Carvana’s business concept is simple: Buying and selling used cars. But the process behind this has proven to be complex, labor-intensive and expensive.
A Ford F-150 gets ready for the paint booth at Carvana’s vehicle restoration center outside Phoenix. The vehicle has been coated in such a way that only the area that needs to be repainted is visible.
Michael Wayland / CNBC
Carvana puts every vehicle it plans to sell through a long process of inspection, repair and preparation for sale. It ranges from removing scratches, dents and other defects to working on engine and drivetrain components. Delivering vehicles to consumers’ homes also has significant logistics costs and processes.
Other new vehicle Stellantis franchises for Carvana are in Sacramento and San Diego, California; Dallas; Atlanta; Cleveland; and Boston. The new franchises add to more than 100 Carvana locations, which consist mostly of vending machines and processing centers.
While major dealers have stores nationwide that they use to stock used and new vehicles, they traditionally sell regionally to avoid additional shipping costs as well as the sales and registration complexities that come with selling across state lines.
“Carvana is showing the franchise dealer community how the power of digital can be applied to create a future-proof retail model,” said Dominique. “There’s nothing stopping any seller in the United States from doing this today.”
The company’s traditional customer locations do not have parts and service departments that represent key profits and customer touch points as in traditional franchise dealers. That’s one of the main questions surrounding Carvana’s plans: Will they expand into parts and services, or leave that to existing dealers?
“If they’re just going to be a sales outlet for new cars, does that change the dynamic of the dealership model? Who will be responsible for taking care of the customer after the sale?” Hogan said.
Murphy said he believes Carvana could use the locations of auction company ADESA, which it acquired in 2022, in addition to its new dealer franchises, to potentially service its vehicles.
Carvana reported that it has the capacity to renew approximately 1.5 million vehicles per year. This compares with fewer than 600,000 vehicles sold last year.
“They have tremendous renewal capacity, potentially significantly increasing their service capacity in a way that other large consolidators do not have,” Murphy said. “I think this problem is potentially treatable.”
