Carvana and CarGurus Leverage AI to Drive Digital Transformation in Car Sales

Consumer preferences are moving toward digital experiences in the online car marketplace, and Carvana and CarGurus are leveraging technology and artificial intelligence (AI) to improve the buying process. Both companies reported strong performances in 2024, using digital tools to optimize customer engagement and refine their business models, though each has faced distinct challenges along the way.

Carvana’s Strategic Growth Drivers and AI Investment

Carvana recorded a 33% year-over-year increase in retail units sold (416,348) and saw its revenue rise 27%, to $13.67 billion. According to the company’s Q4 shareholder letter, Carvana has three main growth drivers: continuously improving its customer offering; increasing awareness, understanding and trust of the brand; and increasing inventory selection and other benefits of scale.

“The pieces are all in place,” the letter says. “We are a team that knows how to build. We have an offering customers love. We have a uniquely profitable and highly scalable business model. And we have already built, acquired, and invested in the most complex and expensive parts of the infrastructure necessary to be many multiples larger than we are today. We achieved the numbers above with just 1% market share. We are nowhere close to the ceiling of this huge opportunity.”

Central to Carvana’s continued success, according to the shareholder letter, is its investment in AI and digital transformation. The company has leveraged machine learning and advanced technology to streamline the car-buying experience, providing consumers with faster, more personalized options.

“Teams across Carvana are using AI to get more efficient and improve our offering and we expect it to touch virtually every aspect of our business,” the letter adds. “One of our earliest and most-developed examples of this is Sebastian, our AI-powered customer service agent. In the last two years, the percentage of customers who choose to interact only with Sebastian and never request to interact with a customer advocate has nearly tripled.”

The Carvana purchase process is designed for speed, the letter says, with 10% of customers completing their purchase in under 15 minutes while others move at their own pace. This contrasts with traditional dealerships, “where transactions typically take hours.”

CarGurus Faces Challenges While Harnessing AI for Growth

Meanwhile, CarGurus saw 2% revenue growth, to $229 million in the fourth quarter, and its marketplace revenue rose 15% in the fourth quarter. But the company faces several challenges, as noted on its Thursday (Feb. 20) fourth-quarter earnings call. These include the potential impact of tariffs on the automotive market and challenges in the digital wholesale segment, highlighted by an $18 million EBITDA loss. Additionally, rising new car inventory and longer days on market could pressure the used car segment, while macroeconomic factors like interest rates and consumer confidence may impact vehicle purchasing behavior.

“We are actively working to rebuild this segment [digital wholesale] optimizing unit economics and driving operational efficiencies with the ultimate aim of returning the business to profitability,” CEO Jason Trevisan told analysts during the earnings call. “We believe our success and ongoing investment in growth and innovation position us strongly for 2025.”

Like Carvana, CarGurus is bullish on the potential impact of AI on the customer experience. In 2024, the company launched more than 30,000 personalized car comparison pages, offering recommendations based on users’ search history. This AI-driven approach increased led conversion by 10% during its testing phase, showcasing the value of personalized engagement.

“With a 14% increase in direct traffic year over year and 30% of our leads coming from our app, it’s essential that we continuously improve the experience across our owned channels,” Trevisan said. “To support this, we introduced cross platform syncing, allowing consumer activity to seamlessly transition between desktop, mobile web, and the app.”

Carvana and CarGurus are positioned for continued growth by leveraging technological innovations. Carvana focuses on AI, operational efficiency and customer experience, while CarGurus emphasizes a data-driven approach and dealer satisfaction. Both companies recognize the importance of digital transformation and AI for future success and are investing in tools to improve consumer experiences and business operations.