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As Carvana crashes, used car dealers, not buyers, stand to win big

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Re: As Carvana crashes, used car dealers, not buyers, stand to win big

#101

Post by GekkePrutser »

ethbr0 wrote: post #95
GekkePrutser wrote: post #90

Earlier quoted context omitted.

I wonder if it's possible for these concepts to really go big. The problem is, there's a lot more lemons on the market then there's great deals. Nobody wants the car that doesn't start twice a week or that's been in an accident and has its chassis skewed. These sites start out by promoting seller karma or something but even the best sellers have lemons to get rid of. At the start they probably just sell them elsewher…

Aka the AirBNB problem. In a nutshell, that you can't have a high quality growth company forever in an industry with a fixed supply of high quality items. Initially, you grow like crazy and with great user reviews, as you're able to pick and choose the highest quality items. Unfortunately, at some point you exhaust the supply at a given quality level, but your valuation mandates continued growth. So you lower your qu…

> So you lower your quality requirements to obtain more supply, which only buys you a bit more time until you hit the next supply limit.

And at the same time you start burning all the goodwill that make you so popular to begin with.

Thanks for explaining it more clearly, I don't really have a business head.

Re: As Carvana crashes, used car dealers, not buyers, stand to win big

#102

Post by SturgeonsLaw »

sem000 wrote: post #32

I think it should be very apparent to just about anyone that there aren’t enough programmers in the world to develop enough capable algorithms to buy and sell used cars or homes efficiently or profitably. There are way too many nuances involved in such transactions that used car dealerships and the traditional real estate transaction model is never going away. If there were any indication of it going the other way, u…

I've only ever bought used cars through private sales, never had an issue. I always get my mechanic to check them out before going ahead with a purchase though, that has absolutely saved me thousands before.

Re: As Carvana crashes, used car dealers, not buyers, stand to win big

#103

Post by ncallaway »

ethbr0 wrote: post #95
GekkePrutser wrote: post #90

Earlier quoted context omitted.

I wonder if it's possible for these concepts to really go big. The problem is, there's a lot more lemons on the market then there's great deals. Nobody wants the car that doesn't start twice a week or that's been in an accident and has its chassis skewed. These sites start out by promoting seller karma or something but even the best sellers have lemons to get rid of. At the start they probably just sell them elsewher…

Aka the AirBNB problem. In a nutshell, that you can't have a high quality growth company forever in an industry with a fixed supply of high quality items. Initially, you grow like crazy and with great user reviews, as you're able to pick and choose the highest quality items. Unfortunately, at some point you exhaust the supply at a given quality level, but your valuation mandates continued growth. So you lower your qu…

> The only winning move seems to be stay private and accept there's a near-term cap on your revenue growth, after which you will grow much more slowly (at the natural supply expansion rate).

Or go multi-brand, and introduce cheaper brands for the lower quality properties, to maintain the goodwill for the higher quality brands. Many hotels do this with many different brands under the same organization that segment their customers on price and quality expectations.

I always thought that Uber/AirBnB etc should be more aggressive in creating more brand separation between their cheaper options and their higher quality options.

Re: As Carvana crashes, used car dealers, not buyers, stand to win big

#104

Post by ethbr0 »

ctime wrote: post #78
version_five wrote: post #46

Earlier quoted context omitted.

A lot of people want a pickup but don't need a full size truck. Tacoma fills this niche - probably more people that have big pickups would have all their needs met with a tacoma sized one. Though it feels like all trucks have scaled up massively over the past 20 years and a 2020 tacoma is probably as big as a 2000 F150.

Most Tacomas seem to sell with a 5’ bed these days, but otherwise yes, trucks are larger than ever. Personally, I found it easier to move 2x4s or anything longer than approx. 5 feet (fishing poles) in my Prius because the Tacoma I had, had such a short bed. Otherwise I was sticking crap through the Tacoma window which was super jank. Oh the irony.

I had an access cab w/ the standard bed (6'). Ended up putting long things in the bed, then up over the cab, then strapped down.

IMHO, with a Taco, you really need to pick an option.

Option 1: I carry people more than things, in the city. Double cab + 5ft bed (aka the common one)

Option 2: I carry things more than people, in the city. Access cab + 6ft bed

Option 3: I carry things and people, and am willing to access the turning radius and parking compromises. Double cab + 6ft bed

Honestly, for urban trucks I always liked the Honda Ridgeline (Gen 1, not sure if they still do) openable divider style. Because most long stuff isn't wide... just long. So it's fine putting it up over the center console.

Re: As Carvana crashes, used car dealers, not buyers, stand to win big

#105

Post by rsj_hn »

015a wrote: post #100
avalys wrote: post #91

Earlier quoted context omitted.

Yeah, exactly. "I loved Carvana because I bought a great car from them at a better price than the legacy players!" and "I loved Carvana because they bought my used car at a really good price!" Guess what? Buying cars for too much money and selling them for too little money means they go out of business.

That's... not what anyone is saying. I bought an Audi from Carvana. It was more expensive than anyone else (~2-4% more). The price they paid for my trade-in wasn't as good as some competitors. I did not interact, in any way, with one of their vending machines. I'd still do it again. It was a totally hands off experience; I will pay extra to not be talked to by someone. The checkout wizard was nearly as easy as buying…

This is what I was saying before on here (and getting downvoted). Carvana's value add was selling used cars to people who don't like the experience of buying used cars. It's a good idea and someone else can take their place.

The problem with Carvana was that by offering auto loans to buyers as well as taking out loans to buy cars from sellers, they became excessively levered in a time of rising interest rates and falling demand for used cars. On the upswing they massively invested, thinking this was business success and not shocking leverage, and the downswing wiped them out.

Whoever the carvana replacement is going to be, they should subcontract out the business of offering auto loans and they should borrow less to fund acquisition of cars, because the auto business is cyclical and they need to be able to survive the downturns, which requires less rapid growth during the boom. But the overall business model can be fixed, even if Carvana can't.

Re: As Carvana crashes, used car dealers, not buyers, stand to win big

#106

Post by epa »

015a wrote: post #100
avalys wrote: post #91

Earlier quoted context omitted.

Yeah, exactly. "I loved Carvana because I bought a great car from them at a better price than the legacy players!" and "I loved Carvana because they bought my used car at a really good price!" Guess what? Buying cars for too much money and selling them for too little money means they go out of business.

That's... not what anyone is saying. I bought an Audi from Carvana. It was more expensive than anyone else (~2-4% more). The price they paid for my trade-in wasn't as good as some competitors. I did not interact, in any way, with one of their vending machines. I'd still do it again. It was a totally hands off experience; I will pay extra to not be talked to by someone. The checkout wizard was nearly as easy as buying…

Oh no, talking to someone

Re: As Carvana crashes, used car dealers, not buyers, stand to win big

#107

Post by geeky4qwerty »

djbusby wrote: post #37
jcampbell1 wrote: post #21

Earlier quoted context omitted.

Drivetime is a privately held subprime used dealer group that lists their inventory on Carvana, which is a public spinoff of Drivetime. The CEO of Carvana is the son of the Drivetime owner. Plenty of room to launder profits via wholesale prices.

This seems like wild speculation.

In October 1990, García, then a Tucson-based real estate developer pleaded guilty to a felony bank fraud charge for his role as a straw borrower in the collapse of Charles Keating's Lincoln Savings and Loan Association.[4][5] Garcia "fraudulently obtained a $30-million line of credit in a series of transactions that also helped Lincoln hide its ownership in risky desert Arizona land from regulators."[4] Garcia spent three years on probation, and he and his firm filed for bankruptcy.[5]

In 1991, García bought Ugly Duckling, a bankrupt rent-a-car franchise, for under $1 million and merged it with his own fledgling finance company, and turned it into a company selling and financing used cars for sub-prime buyers with poor credit history.[5] Garcia took the company public on the NASDAQ exchange in 1996, trading under the ticker "UGLY".[6] In 1999, Garcia was involved in six lawsuits alleging he had "abused his position to profit" from a real estate deal where he ultimately acquired 17 company properties at a 10% discount.[5] In 2002, Garcia and the former Ugly Duckling CEO, Gregory Sullivan, took the company private and renamed it DriveTime.[7]

https://en.m.wikipedia.org/wiki/Ernest_Garcia_II

Re: As Carvana crashes, used car dealers, not buyers, stand to win big

#108

Post by ethbr0 »

ncallaway wrote: post #103
ethbr0 wrote: post #95

Earlier quoted context omitted.

Aka the AirBNB problem. In a nutshell, that you can't have a high quality growth company forever in an industry with a fixed supply of high quality items. Initially, you grow like crazy and with great user reviews, as you're able to pick and choose the highest quality items. Unfortunately, at some point you exhaust the supply at a given quality level, but your valuation mandates continued growth. So you lower your qu…

> The only winning move seems to be stay private and accept there's a near-term cap on your revenue growth, after which you will grow much more slowly (at the natural supply expansion rate). Or go multi-brand, and introduce cheaper brands for the lower quality properties, to maintain the goodwill for the higher quality brands. Many hotels do this with many different brands under the same organization that segment the…

Uber and Lyft essentially did that (Black/Lux).

AirBnB absolutely needs to, given the vast quality range of their current supply.

Re: As Carvana crashes, used car dealers, not buyers, stand to win big

#109

Post by cameronh90 »

Booktrope wrote: post #62
jedberg wrote: post #25

I'm not surprised. I've heard multiple stories from multiple people about Carvana just forgot to collect money from them. They bought a used car, the car showed up, and Carvana just never took the money from them beyond the deposit. This is not only bad for Carvana and their cash flow, but bad for the buyer too, who just has to keep the money sitting there forever in case Carvana fixes the glitch and tries to transfe…

Yeah, bankruptcy basically does not let anyone off the hook who owes the bankrupt company or person a debt. But collection is overseen by a court which definitely can mean that efforts to collect debt owed to the bankrupt party can intensify and are unlikely to end until money is collected.

Over a decade ago, when I first left home, I bought a bunch of home appliances on finance. They never collected any payments, and a few years later, they went bankrupt. Nobody ever came after me and nothing ever appeared on my credit report.

It doesn't happen often, but it does happen.

Re: As Carvana crashes, used car dealers, not buyers, stand to win big

#110

Post by slt2021 »

scarface74 wrote: post #80
whakim wrote: post #52

Earlier quoted context omitted.

I don't actually think buying cars sight unseen is the main obstacle here, because what you're describing (folks taking advantage of the system) represents a tiny percentage of transactions. I think the biggest issue is that you've taken a business which has notoriously low margins (used cars) and you're operating on the lowest margin end on both sides. On the sell side you're buying cars that would otherwise be sold…

The problem is that like with OpenDoor, asymmetrical information favors the seller. If I know I can get a better deal, I’m not going to use Carvana or OpenDoor. If I know there is something wrong with my car/house I’m going with Carvana/OpenDoor.

aka "Lemon markets theory" by George Akerlof, which won Nobel Prize in Economics in 2001

https://en.wikipedia.org/wiki/The_Market_for_Lemons

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