How Dealers Are Competing with Carvana

    By Desiree Homer

    Pre-owned Inventory Reconditioning Is the Clear Path Forward

    The automotive market is hot right now. Brian Finkelmeyer, the Senior Director of New Car Solutions for Cox Automotive, says, “this country is absolutely on fire right now,” and it’s hard to ignore his enthusiasm. Brian has a more than qualified background to back his sentiments, with 20 years in the industry. He joins the Dealer News Today conversation and talks to Derek D. about some of the latest and exciting trends dealers can expect in the months to come. 

    The conversation is worth a listen, especially if you need some optimistic predictions for 2021. There are revenue-driving trends ahead, from consumer stimulus spending to electric vehicles. And there’s another elephant in the room dealers want to learn more about – the Carvana movement. The great news is there is a way forward to compete with the car vending machine giant. Dealers may want to spend more time developing their pre-owned inventory strategies to stay relevant in the virtual car-buying ecosystem. 

    Understanding the Carvana Phenomenon

    Automotive News points out that in the time it takes the average person to brush his teeth, Carvana buys or sells another car. Dealers might feel intimidated by the notion of losing a deal to the remote car vendor every 2.2-minutes. That’s 244,111 vehicles sold in 2020, a whopping 37% increase from 2019. And according to Carvana, that’s a 100-fold jump from the introductory year number of 2,100 vehicles sold in 2014. The Houston Chronicle hailed the company as the “Amazon of Auto,” and Carvana slid into the spot of the second largest-used car retailer in the country.

    Sure, the pandemic may have infused Carvana’s growth. Shut-down economies didn’t keep people from replacing their vehicles. And the touchless car-buying process was the safest way to do so for much of 2020. But the remote engagement and virtual shopping preferences were already there before Coronavirus. Customers were already hungry for a streamlined, seamless, and virtual shopping experience. 

    The Chink in Carvana’s Armor

    Despite the increase in car-buying traffic and unprecedented growth, Carvana still faces a few setbacks. And it’s those chinks in the armor that competitive dealer owners have been looking to exploit. Carvana may have outperformed Wall Street’s expectations, and the Wall Street Journal reported last August the company’s stock jumped 28%. But those results were actually stifled by a few challenges in the used vehicle reconditioning process. And that’s an arena that dealers are masters at dominating.

    Sure, Carvana can buy consumer vehicles all day long and at a rate that makes it harder for dealers to buy pre-owned inventory. But it’s an entirely different story to recondition those vehicles and get them back to a sale-ready condition. Carvana faced constraints in these reconditioning efforts and has since opened official “reconditioning centers” to help them catch up with demand. 

    Dealerships are their own reconditioning centers. And it’s the strategic positioning opportunity your dealerships should be leveraging. Consider increasing your used inventory numbers by any means necessary, including auctions, social media marketplaces, and from consumers directly. Get those vehicles in the shop, turned around, and back on the lot. It could be your competitive edge against the Carvana-types of the industry. But you’ll need to act now. Carvana’s CEO says they’ve increased their reconditioning capacity by 40% since December.

    From the Consumer’s Perspective

    Buying a vehicle is still a sizable and significant investment at the consumer level. And I saw two social media posts last week from friends asking for opinions on the Carvana experience. “Is Carvana the way to buy?” What people want to know is if the car vending machine way is better than a dealership. And the answer is no. The dealership experience is still the superior method for buying a vehicle. Here’s why.

    Carvana brings all the virtual shopping aspects people want most. They want to pick out their vehicles, get their trade-in values, estimate their interest rates, and sign without leaving their couches. Dealers can enhance their engagements to meet these needs, too. Carvana brings the purchased car to you. Dealers can do the same. Digital integration allows Carvana to connect lenders and sales documents. Dealers can also leverage these technologies.

    What the eCommerce car-buying platform can’t do is bring the showroom floor support or personalized service. As efficient as the online process is, the dealership still provides a much-needed human connection and consumer relationship, designed for ongoing support throughout the vehicle ownership cycle. It’s these added services your dealership can offer that will continue to be the competitive way forward.

    Transforming Your Consumer Engagement Strategy

    Attracting new customers means having the vehicles they want to buy. To compete with Carvana, look for ways to grow your pre-owned inventory. Enhance your reconditioning platforms for quicker turnaround of sale-ready vehicles. The used car market, based on current trends, is going to continue to be more competitive, and dealers will have to get creative in their acquisition efforts. Don’t be afraid to explore untraditional methods of bringing those units to your lot.

    You don’t have to beat Carvana in the eCommerce space. You only need to offer the same level of digital connection. Take your processes online, making it easy for customers to browse, ask questions, and get quotes without coming into the dealership. Offer to deliver vehicles once purchasing is final and make digital signing available whenever possible.

    Carvana doesn’t offer test drives. Instead, the retailer allows for a return policy, forcing consumers to finalize their purchase first. Get ahead on this front by offering test drives and bring those vehicles to the customers’ workplaces or homes directly. You can leverage the contactless service element and still offer a way for people to experience new rides before officially committing to the purchase.

    Promote what your dealership can do in terms of service, support, managing recalls, and ongoing maintenance. Once the car deal is done, customers will still need your services to keep their vehicles on the road. Those relationship-building efforts can happen at every stage of the car-buying process, even if it’s entirely digital. These relationships can be built with the help of your sales teams, who can look to make authentic connections with their prospects.

    How to Build Relationships to Compete 

    Dealer owners can take a hard look at each customer engagement point. Remote communications can still offer opportunities to build relationships. Having your sales teams offer vehicle walkthrough videos, for example, can put a friendly face on the virtual car tour. Getting information about a vehicle can mean having a video call to discuss numbers. Your F&I managers can similarly connect in a more personal yet digital way.

    Your service department could be your best relationship-building asset of all. In addition to speeding up your reconditioning process, vehicle maintenance is one aspect Carvana simply can’t beat. Consider developing your marketing strategy in a way that highlights the expertise and customer service-driven approach your service teams bring to customers.

    Self-assist car buying may be the method of success for Carvana. But eCommerce doesn’t hold a candle to the pioneers of vehicle sales. As a dealership, you are uniquely positioned to embrace the new digital movement without losing what consumers really want. Master your used inventory management and reconditioning time. Build the relationships in tandem with your sales process. And promote your service after the sale. You’ll soon see results and find yourself able to compete with the likes of Carvana for the long term.