Will Car Vending Machine Upend Used Car Sales

Will Car Vending Machine Upend Used Car Sales

Dec. 20, 2016
​ Carvana, which launched in 2013 and is now in 21 markets after adding 12 this year, operates "vending machines"  which are located off freeways and  dispense used vehicles to customers who have the special coin to make it work -- which they receive after completing an online purchase.

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 said. 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-to-use return policy is a way to improve the car-buying 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 once-ubiquitous 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.

By Heather Scott

Copyright Agence France-Presse, 2016

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Agence France-Presse

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