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

businessinsider.com

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

#161

Post by ghaff »

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.

Which usually works against a consumer when dealing with businesses. But, in the case of used cars, there are definitely cases where a seller knows that some major system of their car is basically being held together by duct tape--which gets them a good purchase price and may well screw the ultimate buyer of the vehicle.

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

#162

Post by Skates1616 »

bombcar wrote: post #120
adrr wrote: post #93

Earlier quoted context omitted.

They could always get in writing that they don’t owe Carvana any money and it will be very hard to collect as a debt.

Even if you don’t get it in writing you can ALWAYS contest and demand proof from whoever the liquidator sold to - I personally would consider it pretty unethical to try to get out of a valid debt that you intentionally took on but it’s a tactic that is known to work and screw the usurers anyway. Often the paperwork has been misplaced or lost.

You will need a title to the car if you ever want to get rid of it, it’s even needed at a junk yard.

You won’t get a title without making the payments…

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

#163

Post by tptacek »

hajile wrote: post #160
tptacek wrote: post #88

Earlier quoted context omitted.

For what it's worth, I felt the same way about Carmax, last year. Bought online, they drove the car out to me, and when a better trim of the same car popped up on their site 2 weeks later, I just traded it sticker-for-sticker no questions asked. I'm sure I didn't get close to the best price, but I got better than dealership sticker for the make/model/year, and I lost zero time to the transaction.

Just one car auction company (a subsidiary of Cox) controls 80-90% of the market. If a dealer avoids junk, ungraded cars, then the quality is very standardized. As a result of a completely centralized pseudo-monopoly, actual acquisition cost is set to an extreme degree (car auction price ranges are so tight that top and bottom bids are usually within a hundred dollars of each other from very cheap to very expensive v…

Like I said, I'm well aware that I'm not getting the absolute best price at Carmax; that's part of the premise. What I am getting is a month to drive the car and swap it for any other car, or a refund. That's hugely valuable.

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

#164

Post by rhaway84773 »

phphphphp wrote: post #76
hn_throwaway_99 wrote: post #55

I bought a used car from Carvana before the pandemic, and this is pretty sad news to me because after that purchase I vowed that all my future cars would come from Carvana. The buying experience was simply excellent for me, and I couldn't be happier with the car I bought. I figured I probably could have gotten a comparable deal slightly cheaper somewhere else, but I would have wasted a ton of time, and still would ha…

The good experience you had early on and the bad state of the company now are closely linked. The story is always the same with this type of company: take a mature industry that is profitable on a unit basis because it’s boring and unpleasant, then build a narrative around some strategy to make it exciting (giant vending machines!) and get buy-in to spend huge amounts of money in pursuit of the narrative but eventual…

You see this with airlines.

People keep complaining about how flying has become so much more unpleasant.

But other than a small minority, the customers almost always pick lower prices over any improvements in service.

And the same is probably true for buying a used car. Folks may talk about how the experience is poor, but at the end of the day price is what will drive their purchase. So whoever gives the lowest price, which often translates to a worse experience, will succeed in the marketplace.

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

#165

Post by dehrmann »

gmd63 wrote: post #142
phphphphp wrote: post #76

Earlier quoted context omitted.

The good experience you had early on and the bad state of the company now are closely linked. The story is always the same with this type of company: take a mature industry that is profitable on a unit basis because it’s boring and unpleasant, then build a narrative around some strategy to make it exciting (giant vending machines!) and get buy-in to spend huge amounts of money in pursuit of the narrative but eventual…

I think you can generalize even further and say that this story applies to most companies flooded with investor capital. Take Uber for example. The VC subsidies convinced a significant portion of people to upend their lifestyles and attempt to make money in an ecosystem where prices were artificially juiced by VC money. It's ironic that free market types are completely for subsidies when the private industry does it,…

> The VC subsidies convinced a significant portion of people to upend their lifestyles and attempt to make money in an ecosystem where prices were artificially juiced by VC money.

People didn't seriously upend their lives to drive for Uber until they retire. The people who were hurt by Uber were people who bought taxi medallions and suddenly found themselves competing with unlicensed taxis.

But on that point, as much as it sucks for them, their monopoly status meant the service was overpriced and didn't innovate. Uber might have been underpriced when it was subsidized, but it's still cheaper than taxis and makes rid hailing easier. Don't forget that even after the reality of things set in, Uber is still a $50B company. There's a real business there.

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

#166

Post by hajile »

freeopinion wrote: post #94
moralestapia wrote: post #66

Earlier quoted context omitted.

The problem with Carvana's valuation is that car dealerships run on thin margins. It's very hard to make billions out of that.

I have several issues with your comment. 1. What makes you think car dealerships run on thin margins? I don't know what typical margins are, but the owners seem to do pretty well. This may be despite low margins. But I'm reluctant to accept your claim without proof. 2. What qualifies as low margin? 1%? 10%? 3. It is entirely possible to make billions on low margins. A dealer that makes $1000 per car can make $1 billi…

Used car auction prices are basically fixed. 80-90% of all cars are bought in auctions run by just one company (Cox). Sale prices low/high is usually in a range of about $100.

As supply costs are so thoroughly controlled, the biggest way to increase margins is increasing prices either directly or through service contracts and/or financing. There is a slight economy of scale to owning fleets of car transports and the like, but the actual competitive advantage of those things over smaller dealerships is pretty minimal and I don't doubt is completely cancelled out by the extra administration overhead smaller dealerships don't have.

Carmax used to mark up cars $2000 over auction price. That isn't pure profit though. They have to pay to transport the cars from the auction to their dealership. They have to pay for the building/lot and administration. They have to pay for any necessary repairs. They have to pay interest on the vehicles as they are leveraged on the vehicles they buy (one reason they resell so fast, but may lose money that must also be made up elsewhere). Most significantly, they have to pay the sales team.

By the time you're done, they probably make more like $100 or less per vehicle directly and the rest indirectly through warranties, service deals, and loans.

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

#167

Post by beckingz »

dehrmann wrote: post #165
gmd63 wrote: post #142

Earlier quoted context omitted.

I think you can generalize even further and say that this story applies to most companies flooded with investor capital. Take Uber for example. The VC subsidies convinced a significant portion of people to upend their lifestyles and attempt to make money in an ecosystem where prices were artificially juiced by VC money. It's ironic that free market types are completely for subsidies when the private industry does it,…

> The VC subsidies convinced a significant portion of people to upend their lifestyles and attempt to make money in an ecosystem where prices were artificially juiced by VC money. People didn't seriously upend their lives to drive for Uber until they retire. The people who were hurt by Uber were people who bought taxi medallions and suddenly found themselves competing with unlicensed taxis. But on that point, as much…

It's the same price as taxis nowadays.

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

#168

Post by mbreese »

gmd63 wrote: post #142
phphphphp wrote: post #76

Earlier quoted context omitted.

The good experience you had early on and the bad state of the company now are closely linked. The story is always the same with this type of company: take a mature industry that is profitable on a unit basis because it’s boring and unpleasant, then build a narrative around some strategy to make it exciting (giant vending machines!) and get buy-in to spend huge amounts of money in pursuit of the narrative but eventual…

I think you can generalize even further and say that this story applies to most companies flooded with investor capital. Take Uber for example. The VC subsidies convinced a significant portion of people to upend their lifestyles and attempt to make money in an ecosystem where prices were artificially juiced by VC money. It's ironic that free market types are completely for subsidies when the private industry does it,…

> VC subsidies are usually about hiding the true market value of a product to attract customers

A more benevolent reading of this is that the VC money is used to make the product more affordable at small scale. Many times products become cheaper/affordable at larger scales. Young companies use the VC $$ help to get them across that inflection point.

This logic breaks down when the product cost doesn’t get lower with more scale. Customer service oriented companies usually fall in this category.

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

#169

Post by gnicholas »

mkhpalm wrote: post #130
arealaccount wrote: post #45

Bummer, buying from a dealer always feels bad. Would be great if a company could figure out a digital off the shelf shopping experience. The last car buying experience I had the brick and mortar dealerships listed so many bait cars that online shopping was scammy/pointless.

Go through car buying services then report the dealership to the car buying service when you encounter a bait cars and scams.

Do car buying services do anything about these reports? It seems like pretty much every dealer bait-and-switches.

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

#170

Post by hgdfhgdfhgf »

gmd63 wrote: post #142
phphphphp wrote: post #76

Earlier quoted context omitted.

The good experience you had early on and the bad state of the company now are closely linked. The story is always the same with this type of company: take a mature industry that is profitable on a unit basis because it’s boring and unpleasant, then build a narrative around some strategy to make it exciting (giant vending machines!) and get buy-in to spend huge amounts of money in pursuit of the narrative but eventual…

I think you can generalize even further and say that this story applies to most companies flooded with investor capital. Take Uber for example. The VC subsidies convinced a significant portion of people to upend their lifestyles and attempt to make money in an ecosystem where prices were artificially juiced by VC money. It's ironic that free market types are completely for subsidies when the private industry does it,…

"It's ironic that free market types are completely for subsidies when the private industry does it, although public and private subsidies both have issues."

This analogy is strange. Free market types aren't against private investors throwing private money at bad investments nor would they want any regulations against it.

"At least government subsidies have a benevolent intent usually."

Government subsidies aren't known for wasteful spending? They don't hide the real value of a product (like healthcare)?

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