Will car vend­ing ma­chine up­end used ve­hi­cle sales?

Re­tailer gets rid of deal­er­ships

Kuwait Times - - BUSINESS -

WASH­ING­TON: If brick-and-mor­tar stores fear Ama­zon and e-com­merce as a threat to their ex­is­tence, used car deal­ers may be ter­ri­fied by the new­est de­vel­op­ment in their in­dus­try: A car vend­ing ma­chine. Yes, it’s real. And no, you can’t shake it to get a free one. On­line used car re­tailer Car­vana opened its new­est “vend­ing ma­chine” last week in Hous­ton, where the gleam­ing, glass-en­cased struc­ture sits right off a busy free­way. The eight-storey au­to­mated garage - three lev­els higher than the first ver­sion which de­buted in Nashville a year ago holds 30 cars.

It dis­penses used ve­hi­cles in four de­liv­ery bays, but only to cus­tomers who have the spe­cial coin to make it work - which they re­ceive af­ter com­plet­ing an on­line pur­chase. This is a mar­ket­ing gim­mick, of course. But the com­pany be­lieves it could prove a valu­able part of the strat­egy to win cus­tomers over by com­pletely over­haul­ing the dreaded process of buy­ing a used car, some­thing no­to­ri­ously dif­fi­cult and plagued by the fear of sales peo­ple tak­ing ad­van­tage of prospec­tive buy­ers.

“Our view of what we are try­ing to do is make the ex­pe­ri­ence a high qual­ity one that cus­tomers love,” Car­vana co-founder and CEO Ernie Gar­cia told AFP. The goal, he said, is “to make car buy­ing fun.” He said the founders did not start out plan­ning to be an on­line site, but aimed to re­think the car buy­ing trans­ac­tion from start to fin­ish and find ways to “dif­fer­en­ti­ate eco­nom­i­cally, through the en­tire pipe­line.”

No deal­er­ships

The first step was to take a page out of Ama­zon’s book and get rid of deal­er­ships, which Gar­cia says adds $400 to the price of a car. An­other $1,400 goes to pay sales per­son­nel. Car­vana, which launched in 2013 and is now in 21 mar­kets af­ter ad­ding 12 this year, stores its cars far out­side ci­ties in ar­eas where rent is cheap. The com­pany says this year it saved cus­tomers more than $1,400 on av­er­age on pur­chase prices com­pared to the Kel­ley Blue Book sug­gested price, the in­dus­try stan­dard.

The typ­i­cal con­cern for cus­tomers buy­ing a used car is whether they can trust that the ve­hi­cle is safe and re­li­able, and whether they are pay­ing too much. And even in the best of cases, the process can take sev­eral hours of pa­per­work to com­plete a pur­chase through a tra­di­tional dealer. Car­vana of­fers on­line com­par­i­son shop­ping, re­fur­bished ve­hi­cles, fi­nanc­ing op­tions and trade-ins all on its web portal, and Gar­cia says the fastest pur­chase was com­pleted in seven min­utes.

The com­pany also pro­vides free de­liv­ery as soon as the next day, or pickup at one of the vend­ing ma­chines. De­liv­ery costs $150, so Gar­cia says the vend­ing ma­chine is an­other way for Car­vana to trim costs. How­ever, as part of the new ser­vice they are of­fer­ing $200 to buy­ers who pre­fer to fly to Hous­ton to pick up from the vend­ing ma­chine, and trans­porta­tion from the air­port.

Easy re­turns, growing rev­enue

The com­pany also of­fers a seven-day test drive pe­riod, which al­lows cus­tomers the pos­si­bil­ity of a full re­fund.

“There is a lot of ev­i­dence that an easy-touse re­turn pol­icy is a way to im­prove the car­buy­ing ex­pe­ri­ence,” said Gar­cia, who com­pared the pol­icy to on­line shoe re­tailer Zap­pos, which over­came skep­ti­cism about buy­ing shoes with­out try­ing them on with its pain­less re­turn pol­icy. He said about half of the cus­tomers who re­turn cars switch to an­other ve­hi­cle. “It’s very clear from the cus­tomer re­sponse that what we’re do­ing works,” Gar­cia said.

Car­vana’s rev­enues more than dou­bled this year to $350 mil­lion from $150 mil­lion in 2015, and just $40 mil­lion in 2014. The first year of op­er­a­tion saw just $4 mil­lion in busi­ness. And the firm this sum­mer raised an­other $160 mil­lion in fund­ing, bring­ing the to­tal to $460 mil­lion.

The Block­buster curse?

Car­vana is not the first com­pany to try to re­think the used car buy­ing ex­pe­ri­ence. There are many other on­line op­tions, and CarMax be­came a big dis­rupter with its no-hag­gle pric­ing, easy trade-ins and rep­u­ta­tion for straight-deal­ing. But CarMax also uses tra­di­tional deal­er­ships, fre­quently in ar­eas where other car deal­ers are lo­cated. Could the vend­ing ma­chine up­end the sales model and make CarMax go the way of Block­buster? The on­ceu­biq­ui­tous video rental stores col­lapsed quickly af­ter the ar­rival of DVD de­liv­ery ser­vice Netflix and on­line streaming.

Gar­cia de­clined to say. Nor would he pro­vide de­tails on sales at the Nashville vend­ing ma­chine, ex­cept to com­ment that “the re­sponse we have seen has been over­whelm­ing.” As a re­sult, the com­pany is look­ing to add more. “We’re try­ing to ex­pand as quickly as we re­spon­si­bly can,” he said. “We’re look­ing to build out more.” News re­ports say the com­pany was try­ing to ac­quire land near Rich­mond for an­other ma­chine, but with­drew the ap­pli­ca­tion af­ter lo­cals raised con­cern about the amount of light from the build­ing. — AFP

OAK LAWN, Illi­nois: In this Dec 20, 2010 file photo, a car drives past the CarMax sign at the used-car deal­er­ship. — AP

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