Online Auto Rides Unlikely Wave Of Success

With Vroom motoring its way to a high-valuation IPO, it’s a good time to take stock of how a digital model for buying cars survived and thrived in the most challenging business environment of the digital era.

“The digital model was in a lot of ways made for what we’re dealing with right now,” says Shift CEO Toby Russell. “Consumers are now getting everything online and that’s going to shape their behavior for good. Cars — and transportation in general — are essential. It is non-negotiable for most people. So even during a crisis, people will need cars. The question is which cars and how they get them (i.e. online or offline, safely or not). That’s why Shift has seen better performance from most OEMs, new retailers and traditional brick-and-mortar retailers who don’t have this formula set up to respond to this scenario.”

Modesty aside, Shift is one of the prime examples of how innovation and shrewd management led firms like Vroom, Carvana and even more traditional companies to this point. Although he was extremely concerned about business volume at the beginning of the crisis, Russell says Shift’s online sales rate has doubled since the COVID-19 crisis started. Its pre-crisis business model consisted of car dealerships and holding lots called hubs, where consumers could check out cars that they’d already researched. It also operated a concierge service where a car could be driven to a prospective buyer’s home and test-driven with the option for purchase from the concierge. Shift has adapted its model to deal with the COVID-19 pandemic by offering its proprietary software solutions to a limited number of dealership groups that have operations impacted by the nationwide social distancing orders.

Although it hasn’t used the exact term, Shift has been using “untact” strategies, which is a word and movement gaining traction in South Korea. Technically meaning “without touch,” the term has even been co-opted in marketing by Hyundai. For example, its Mobis parts and chassis division last week announced that it will move several key marketing functions to “untact” including producing Virtual Tech-Fair content which it will use for sales. The content handled by the Virtual Tech-Fair are not minor initiatives for Hyundai. They include future technologies, such as autonomous driving sensors, electrification and connectivity, and new core technologies, such as braking, steering, lamps and airbags. The company will produce and share VR content with customers rather than rely on in-person trade shows or company events.

Back on the online side of the business, Carvana has mixed innovation with tough financial management. It saw a substantial slowdown in business in mid-March into April with weekly retail unit sales down approximately 30 percent year over year early in the month. In recent weeks, sales have rebounded to approximately 20 to 30 percent growth over 2019.

“In response to the demand slowdown, we prioritized reducing expenses in ways that are easily reversible when demand rebounds,” Carvana said in a recent letter to shareholders. “To this end, we temporarily paused new market openings and vending machine launches and significantly reduced discretionary growth expenditures on new hiring, travel, facilities, and IT investments. We have also rebalanced our marketing, staffing, and purchasing levels to align with demand, while closely monitoring key metrics to determine when and how quickly to adjust.”

The company also stopped inventory acquisitions in mid-March in anticipation of lower demand and pricing uncertainty. As of early May it reduced total inventory by approximately 30 percent compared to the end of the first quarter. Wall Street has applauded the results.

“The onset of the coronavirus pandemic was initially met with tremendous pessimism and uncertainty,” said The Motley Fool. “As we navigate these unprecedented times, we ask ourselves what life will look like in the future. E-commerce is a trend that is going to accelerate and become an even bigger part of our day-to-day lives. It was once unthinkable to make a big life purchase like a car online, but Carvana is here with a seamless solution. The company is offering touchless delivery and is letting customers go 90 days without making their first payment. This is just another way Carvana is providing peace of mind during a challenging time.”