While it’s no secret that the used vehicle market is continuing to become a primary driver of profitability for franchise dealerships, other used vehicle retailers are already ahead of the curve in terms of inventory sourcing and honing their acquisition strategies.
We’ve watched auto retailing titans like AutoNation continue to focus on used vehicle operations as part of their business plan and CarMax continues to dominate the market with their multitude of locations and large inventories. Carvana, a relatively new player and not yet profitable has entered the space and expanded rapidly over the past two years.
It’s not a surprise as new vehicle prices continue to rise and customers hold on to their vehicles for longer than at any time in history. When we put into perspective sales numbers for automotive retail, new vehicle sales totaled 16 million in 2019 with used vehicles far outpacing that coming in at 40 million vehicles sold. The challenge a strong used vehicle market presents for all automotive retailers is inventory sourcing.
Auctions are becoming more competitive than ever before with the aforementioned used vehicle retailers scrambling to replenish the inventories that feed their retail locations. Trade ins are a good source of inventory but less predictable in terms of acquiring fast moving, high return vehicles. What many dealers have overlooked or are just beginning to capitalize on are “buying cars from customers” or what has traditionally been referred to as buying vehicles at the “curb”.
An advantage that large scale used vehicle operations like CarMax and more recently Carvana have is that they are buying vehicles directly from customers wherever and whenever it is possible. This acquisition strategy makes a lot of sense in terms of both acquisition cost, building the brand experience and providing customers with another reason to interact and conduct their business with these automotive retailers.
In recent quarterly earnings conference calls the CEO of Carvana, Ernie Garcia, has repeatedly stated that Carvana is focused on buying cars from customers as their main source of used vehicle inventory. In fact, Carvana has grown this acquisition strategy over 300% in the past year. A recent Automotive News article wrote the following.
“As Carvana grows rapidly in size and scope, the number of vehicles the online used-car retailer buys from consumers has skyrocketed — and CEO Ernie Garcia expects that growth to continue”. Logically, there's no natural ceiling on how big it can be," Garcia said in September at an investor conference in New York”.
Whereas traditional trade-ins are restricted to the number of customers buying from Carvana who also have a vehicle to sell, buying from consumers in general, regardless of whether they intend to purchase, is an almost limitless proposition.
The direct from consumer acquisition strategy is why Vehicle Acquisition Network was founded. Our industry leading software platform makes buying vehicles from customers more efficient and effective. With data compiling, customized search criteria and rapid communication methods, a dealership can implement a customer acquisition strategy while strengthening the dealership position within their market.
If you’re interested in discussing buying cars from customers in more depth or you would like to learn about the VAN software platform, you can reach us directly at 855-952-4949.