Carvana’s new vehicle franchise for Stellantis includes personalised displays and a vehicle “playground” for consumers for each of its core U.S. brands.
Courtesy Carvana
DALLAS — Carvana is aiming to bring its online strategy for selling used vehicles to sales of new cars and trucks.
But don’t expect the company to actually sell you a vehicle at one of its seven Stellantis franchised dealerships.
Instead, the online vehicle retailer said it intends to use such dealerships as service locations, test-drive centers and potentially “playgrounds” for consumers to decide what vehicle they would like to buy through Carvana’s online platforms, marking a stark contrast from how traditional franchised dealers handle new products.
“Every single car that we sell, whether it’s used or new, is online,” Tom Taira, Carvana president of special projects who’s leading the new vehicle operations, told CNBC during an interview at its franchise in Texas. “That’s a very inherent difference. Even coming into the store, you’re buying it online, and that’s a big difference in how people think about it.”
Through its used vehicle sales, Carvana has become the most valuable auto retailer in the U.S. with a more than $70 billion market cap. Carvana’s target with the new vehicle business is to grow its market share and customer base as well as assist used vehicle sales through trade-ins and other means, according to Taira.
If the company is successful, the strategy could cause a ripple effect across the U.S. franchised dealership model, which the National Automobile Dealers Association says includes 16,990 retailers that topped $1.3 trillion in sales last year.
This week marks the first time Carvana has publicly talked about its plans for new vehicles since it purchased its first Chrysler-Dodge-Jeep-Ram franchised store for Stellantis early last year in Arizona. Its network has since grown to other Carvana-popular markets in Sacramento and San Diego, California; Dallas; Atlanta; Cleveland; and Boston.
“When we got into new cars, we said the only way we’re going to make this happen is to ensure that it goes the Carvana way. That we actually sell cars exactly the same way that we do to used car customers,” Taira said during a media event at its Dallas location. “Why break something that already works?”
Customers visiting Carvana’s franchised dealership in Texas are encouraged to use their smartphones and QR codes to navigate the location and new car buying process for the online vehicle retailer.
Courtesy Carvana
Carvana spent roughly $171 million on its acquisitions of new Stellantis vehicle franchised dealerships, excluding its most recent purchase of a retailer in Ohio, according to public filings. The company declined to disclose any further investments in the stores to implement its strategy.
Taira and the company also declined to disclose Carvana’s new vehicle sales so far or its future expansion plans for additional brands or other Stellantis dealerships. CNBC previously confirmed that the company has quickly grown its new vehicle sales, including a location in Arizona becoming the top-selling dealer in the country for Stellantis.
“We believe that this was worth it to us, as long as we could go out and increase share and increase the pie,” Taira said. He declined to comment on whether the new vehicle business is profitable.
To be able to integrate its new vehicle sales into its current website, as first reported by CNBC, Carvana was approved as a certified website provider for Stellantis instead of utilizing mandated third-party companies. Several franchised dealers said they believed that was a unique benefit for Carvana.
Stellantis, in an statement to CNBC, said Carvana operates as a “corporate owner” of its brands, similarly to other large publicly traded companies such as Lithia and AutoNation.
“We apply the same consistent standards and criteria to all dealer partners, and any organization that meets our qualifications is eligible to operate as a franchisee,” the automaker said, adding that Stellantis “certifies tools and services that will enhance our program and be beneficial to our network. All certified providers must complete a rigorous onboarding process and meet program standards and requirement.”
Test-drives, vehicle ‘playground’
Carvana has replaced a traditional franchised dealer’s vehicle lot at a facility in Dallas with a “playground” with each Stellantis brand having a theme, including. Chrysler minivans having a soccer net.
Michael Wayland / CNBC
Carvana is using a location in Dallas as a test center for its foray into new vehicle sales. The facility looks like a traditional Stellantis dealership from the outside, but the consumer process for purchasing a vehicle and the responsibilities of its employees are unprecedented.
Couches and chairs replace cubicles and sales offices. There are no finance and insurance departments, and instead of an army of commission-based employees, the facility has associates that are paid hourly to assist customers — if they want the help.
The experience is meant to be as self-guided as a customer wants. By scanning QR codes located on 10-foot-by-10-foot screens inside the building or on vehicles and displays outside, shoppers can customize a vehicle, learn about a product’s features and conduct test-drives before deciding whether to purchase anything. If they do decide to buy something, it’s online and not originated from a sales person, the company said.
The playground has roughly 50 vehicles divided by brand, with each having a theme. Jeep has an off-road display. Dodge has race tracks, including a Carvana-themed Charger pace car and part of a traditional track fence barrier. Chrysler minivans, meanwhile, have a soccer net and Ram’s area is truck-centric.
Customers visiting Carvana’s franchised dealership in Texas are encouraged to use their smartphones and QR codes to navigate the location and new car buying process for the online vehicle retailer.
Courtesy Carvana
Carvana is not committing to expanding the exact experience to its other franchised dealer locations, but Taira told CNBC that the overall process of online sales, vehicle testing and service are expected to be consistent throughout the locations.
“I think the business case and the case for additional stores comes out through this location first,” he told CNBC, adding that it built out the store in weeks. “Is it important for us to launch a second? No, I think what’s important is that we get this right. … There’s no giant plan to build test-drive centers everywhere.”
Vehicle inventory constraints
Once a customer decides to test-drive or even purchases a vehicle from the location, that’s where the process can get more complex, depending on what model a consumer wants.
Taira said the company chose to purchase Stellantis dealerships for the automaker’s breadth of brands as well as its variety of products, which can be a double-edged sword when it comes to consumers actually finding the exact vehicle they want to test-drive or purchase.
Unlike a traditional dealership that stockpiles vehicles for customers to test-drive before purchasing, at the Texas facility, Carvana has roughly 50 display cars on its playground, with twin vehicles for test-drives. It had roughly 3,000 new vehicles for sale nationwide compared with more than 60,000 used models as of Wednesday morning, according to its website.
This means that a customer may not be able to test-drive the exact vehicle or even model they’re purchasing, but the online process tries to match the best test-drive vehicle possible with what they want. It also describes what’s the same and what’s different.
Carvana’s stock over five years.
Looking at the Texas location’s system for vehicles such as an $87,000 Ram 1500 RHO performance model, the closest thing on-site for a test-drive was a roughly $61,000 Ram 1500 Big Horn with the same interior and four-door configuration but no other feature matches, including its performance engine.
It’s why traditional automotive dealers have large vehicle inventories, especially for pickup trucks that have a litany of build options and wide bandwidth of performance specs.
Taira said Carvana is continuing to take lessons learned from its year-plus experience of selling new vehicles into its day-to-day operations. He said the company is learning what vehicles to keep in stock and is working to ensure customers know they are buying a new vehicle rather than a used one.
“We’re going through all this technology. This is brand new,” Taira said. “All these things are active, meaning the amount of progression we’re going to make over the course of the next days to weeks to months.”
Taira said the company prioritizes new vehicle sales to local customers, much like it does for used vehicles, to avoid additional costs, but it does use its nationwide logistics network and more than 100 U.S. Carvana locations when necessary.
Carvana will service vehicles
A major question of Stellantis franchised dealers and Wall Street analysts before Carvana revealed its new vehicle plans was how the company planned to service the new products it sells.
Taira said the company, for the time being, will operationally run its service departments like a traditional franchised dealer, but with its guiding strategy of transparent, nonhaggling pricing and “hassle-free” customer experience.
“As it relates to how you actually do service, they’re traditional. It’s a traditional setup in that way,” he told CNBC. “In that way, what we’re doing … as it relates to service, we believe the same principles that we have with selling cars.”
A map with a QR code shows the Jeep vehicle area in Carvana’s vehicle “playground” at its franchised store in Dallas, Texas. Each vehicle has a number as well as an accompanying QR code to learn about the vehicle.
Courtesy Carvana
At the end of the day, selling cars is Carvana’s core business, but servicing vehicles has historically been a lucrative market for franchised dealers, along with customer financing, which Carvana has always focused on for its business.
Much like its used vehicles, Carvana is currently only accepting cash or offering financing through the company itself, including selling consumer auto loans it originates to institutional investors and partner banks, such as Ally Financial, to maintain liquidity.
Taira did not dismiss the possibility of Carvana offering leasing or using Stellantis’ financial services, which have been highly profitable for automakers, but said the offerings would need to seamlessly integrate into its current online selling platforms.
“Part of what makes this great, this experience, is what we already know. What we already know is the system that we have in place,” he said. “That does not mean that integration isn’t something that we’re going to be as part of our learning and experimentation going forward.”
Source: www.cnbc.com
