Doritos or a Dodge Challenger?
On March 15, Carvana, an e-commerce platform for used cars, opened its latest vehicle vending machine in San Antonio, which is exactly what it sounds like. The four-year-old startup already has similar contraptions in Austin, Houston and Nashville. Standing eight stories tall, the site is essentially a small garage with room for 30 cars. When a customer puts in a special “coin,” her car of choice is plucked from the rack like a bag of chips, albeit more delicately (here’s a video of how it works).
Customers buy their car in advance from the company’s online inventory of about 8,000 autos, then it’s loaded into the machine for the big reveal — as Carvana puts it: “A personalized and memorable pick-up experience.” Is it a gimmick? Of course. However, it’s rare for a car dealer – particularly a used-car dealer – to embrace the surprise-and-delight mantra that most retailers subscribe to these days. Coffee that’s occasionally decent is about as far as dealers go.
Carvana is taking another page from the 21st century retail playbook: the omni-channel strategy — letting customers shop wherever and however they want. For vending machine fans who don’t live in San Antonio, Carvana will carry the gimmick to great lengths, kicking in $200 in travel expenses and a ride from the airport. Not into the car-as-a-candy-bar thing? No problem. Carvana also delivers. Feel free to buy a worn-in Ford F-150 on your iPhone and have it sitting at the curb the next day, if not sooner.
— Carvana (@Carvana) March 13, 2017
Carvana offers warranties and financing and its prices are generally pretty good, in part because it doesn’t have to worry about maintaining and staffing dealerships. What the company doesn’t offer is a test drive, though there’s a seven-day window to return a vehicle — no questions asked.
If a website is too quick for such a big-ticket transaction, buyers can still go to an old-fashioned lot and smell the coffee. Carvana’s is financed by DriveTime Automotive Group, a Phoenix-based network of dealerships. But the real question for Carvana is whether a critical mass of consumers are comfortable dropping tens of thousands of dollars on a product, sight unseen. If real estate is any indicator, the answer is yes.
In August, the company raised $160 million in its third round of funding, and it reportedly has an IPO in the works. Carvana Chief Executive Officer Ernie Garcia says buyers who know what they want spend as little as 10 minutes on the transaction.
In truth, Carvana, and the crowd of e-commerce startups like it, doesn’t need to corner a vast share of buyers. The used-car market in the U.S. is massive — slightly larger than that for new vehicles. In a good year, 45 million machines and some $640 billion will trade hands.
If a company such as Carvana captures one-quarter of that, it will be about as big as General Motors — though probably more profitable.
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