Google “used car dealer.” Click on the image tab. Within the top four thumbnails you will see a man wearing a bad jacket, a bad hat and a villainesque mustache. He is the cliché of a profession that has a lot of suede sheen on it, but at least one company is in the market to bring used car sales into the digital future.
“We get that a lot,” said Shift Co-CEO Toby Russell of the stereotype. “It’s hard to imagine that there’s so much technology and innovation happening up and down the mobility spectrum except for in this market — and it’s a $1.4 trillion market in the U.S. alone. These are massive purchases. But to the point of upgrading the process, being ‘digital’ is table stakes these days. It’s 2020, we have technology everywhere all the time, and most people are doing all their research on their phones anyway. So this is a real opportunity to streamline the maintenance process for customers by bringing them this feature through apps too.”
Shift has been in the used car business since December 2013, born out of a series of frustrating experiences the founders had with car buying. It has had several healthy fundraising rounds over the past seven years, and is currently available on West Coast only. However, it’s trying to change the way people buy used cars through an eCommerce business model. Via online and mobile it has introduced artificial intelligence (AI)-based technology in pricing cars as well as qualifying for financing. For those looking to buy a used car, Shift has gone a long way toward making the purchase seamless. It calls itself “a concierge for the used car business.”
How It Works
Before getting into new features that are unique to the online automotive business, this is the basic business model: When a seller contacts Shift he or she enters all the relevant information including Vehicle identification number. Through its proprietary algorithm, it contacts the seller with an estimate at which Shift will buy the car. If the seller is still interested Shift personnel will pick up the car from one of its hubs (San Diego, Los Angeles, San Francisco, Sacramento and Portland) and pay the seller via ACH transfer. All DMV paperwork is handled by Shift.
On the other side, the buyer creates an account and browses the online selection. The car is presented via photo and key details along with the price. The buyer can go to a hub to test-drive the car, or the car will be brought to the buyer for the test drive. But even that is changing as of last week when Shift added several new features, including a fairly radical concept and technology feature.
It has now taken the test drive into the digital age. Shift has introduced an option for customers to buy cars directly online, without any test drive. The car is shipped to the potential buyer for a five-day period. If the buyer likes it, the buyer keeps it. If not, Shift picks the car up. Again, all finances and DMV paperwork are handled by Shift. Since the program’s pilot launch in November, direct-online sales has accounted for about 15 percent of Shift’s overall sales.
“From the first days of Shift, we always envisioned that some portion of customers would want to buy a car fully online without first seeing the car, and then have it shipped to them,” Russell said. “Over the last few months we have released this capability to our customers. It’s a fully paperless car buying experience. The buyer doesn’t even leave the driveway.”
Shift has also innovated on the automotive finance side. It launched a custom-built loan pre-qualification tool last week to help customers case their financing options. The tool uses machine learning to predict likely loan offers. Once a customer has provided details, they can view prices based on their estimated monthly payment. They can then offer a down payment and loan period.
The company has also digitized the repair schedule, launching digital maintenance appointments for its Los Angeles and San Francisco hubs. Customers can go online to schedule appointments for their vehicles for standard maintenance and servicing, and view updates on their service, receive reports, and complete payment online. Shift estimates its maintenance services are 30 percent less than local market rate.
“I wouldn’t say we’re changing our business model,” Russell said. “The model has always been focused on creating a fully technology-driven car purchase experience for the broadest spectrum of cars out there, with a particular focus on bringing the test drive to the customer. This continues to be the business model. We believe that the company has an amazing product market fit and we are doing all we can to scale the business. What we are doing, however, is enabling and adding more features to our product that we have always envisioned on having, but have not had a chance to work on in the past, since you can’t work on everything all at once.”
In terms of customers, Shift has identified more than one type of car buyer and seller, he explained. Among buyers the firm identifies “car first” and “financing first” customers. Car first customers want to find the car that fits their needs, and are confident they will be able to get financing if they want it. Financing first customers are primarily concerned about whether they will get the right loan and based on that want to be able to filter the cars they can afford with that loan. The pre-qualification product serves both and enables financing first customers to filter the entire inventory by the cars that fit into the loan that they are likely to be approved for.
Shift says its biggest demographic groups are millennials and GenXers (or an age range of 25 to 45). In general, its customers are fairly early tech adopters — those accustomed to the Amazon model.
“At the end of the day,” Russell said, “so much about cars themselves is being innovated, and so many people are applying technology to improve the actual machines. Nobody is applying technology to the millions of cars that already exist to try to make that massive market work better. So our whole thesis as a company has always been to innovate what everyone else is overlooking.”