Dealerships can compete with Carvana, if they are willing to adapt

Among the many interesting comments stemming from TRADER’s annual event this year is one about how dealerships can compete with Carvana — if there is a willingness to adapt.

That comment came from Andrew Tai, CEO of Motoinsight and keynote speaker at the April 20th online Carology event. During his presentation, Tai considered what Carvana is doing right as a business, and the idea that the company is “supposedly out to eat the traditional car dealers.” 

According to Tai, Carvana is currently worth approximately $45 billion, and has far outperformed the stock prices of most other major publicly traded automotive groups.

“To put it in context, Lithia is shy of $10 billion in market cap, and Carvana is worth more than Lithia, AutoNation, Sonic, Asbury — all of them combined. And you could probably throw in a few more,” said Tai. “They sold six and a half thousand cars in 2015. And this year they’re going to be on pace to sell well north of a quarter million cars.”

But when looking at what Carvana has that dealers do not, or cannot replicate, Tai said there was not much — as in, dealerships can actually compete with the company.

He said most of the things the company does can be done by automotive retailers. For example, Carvana offers high quality vehicle merchandising such as photos, videos, spins, and accurate descriptions. They offer transparent, upfront, and competitive pricing, along with a seamless online and in-store experience that allows customers to transact wherever and whenever they want. And they stand behind their product and experience, and reach consumers through things like advertisements, reviews, and giant vending machines.

“Yes, they have these things called car vending machines, but truth be told, those are really more publicity and marketing than anything else,” said Tai. “To put some context into this, Carvana operates in 260 some odd markets — almost 300 — but they’ve got 25 of these machines at the end of the day. They’re in the business of selling cars, just like all you dealers.”

So what is really different about Carvana that makes customers rave about them, investors love them, and are hailed as the next great disruptor to dealerships? The simple answer, according to Tai, is that they sell a lot of cars online.

He said customers have been buying vehicles from home and dealerships have been facilitating it for some time. It may have been less common years ago, and it may have involved more back and forth with email and fax, but Carvana is at the end of the day still in the business of selling vehicles — and there are things they do to make this happen, and they do it really well.

“You got to give it to them, they still merchandise their inventory on SRP pages and VDP pages, and they do it really well — with high-res photos and 360 spins,” said Tai. “They have all the tools that enable a customer to do pretty much all the transaction work from home, from trading to credit, to payments and the like, they don’t just capture leads and force customers to wait for a call back. But again, I’ve seen dealers adapt to that and do that too.”

Tai said people are still very much involved in the car buying process and have what they call customer advocates, which sounds similar to an advanced Business Development Centre (BDC). Typical transactions can involve multiple phone calls, chat sessions, and pieces of paper to sign, like the dealership experience. And yet, Carvana’s customers rave about the fact that they purchased a vehicle online and how innovative the experience was, which Tai said points to the recognition that “human interaction must still be present.”

Like the company, dealerships also have access to digital retailing and data. Take CarMax for example, a U.S.-based used car retailer and Fortune 500 company that uses digital retailing online tools to measure customer engagement and connect with what they call customer experience centres — call centre teams that help customers complete their orders online. 

“The way they characterize it is there are three types of customers that they pay attention to: customers who want to do the entire transaction, online customers who want to shop on their own terms (both online and in store), and then customers who prefer to shop up close and complete the entire inside of the store,” said Tai, adding that all three are important, as this is what omni-channel really means. 

The key takeaway? All three channels are important, and not a single one should be ignored. 

Looking back at the question Tai asked at the beginning of this presentation: what does Carvana have that dealerships cannot replicate? The short answer is not very much. Tai said dealerships can compete if there is a willingness to adapt.

This means providing high quality vehicle merchandising photos, vehicle, video spins, and accurate descriptions, along with transparent, upfront, competitive pricing, seamless online and in-store capabilities, and the ability to allow customers to shop when they want and how they want. It also means standing behind the product with a guaranteed and “really being able to shut that out as a differentiated message,” said Tai.

“These are all the things that Carvana has done exceptionally and have struck a nerve with consumers,” said Tai. “But traditional car dealers can do the same as well” — so long as they adapt.

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