Carvana Is Selling New Cars Now WTF? | Episode 930

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It's noon here in Venture City, New Jersey, in our nation's capital, Washington, D.C., and this is CarEggs Live for Tuesday, September 23rd with your hosts, me, Ray, here in Venture City, and well, Zach, transparent and see-through in Washington, D.C.

I'm waiting for a trip to Fall River Gorge or some Fall Gorge. Whatever it is, how are you today, handsome?

Hey, for effort there, pops. I'm doing great. Happy Tuesday, September 23rd. My sister's birthday is tomorrow, so really excited for that. But folks, today's show is brought to you by CarEdge.com. Appreciate everyone that supports our company and our work.

If we can help you out shopping for a new, used, or in-between vehicle certified pre-owned, we can help out with that. We have Car Buying Services, CarEdge Insights, our research solutions, warranty, tracking your vehicle's values, AI negotiator.

We got so much back on the CarEdge.com website. Now, for today's story, today's big topic that we're going to dive into, Dad, it took a lot of self-restraint to not say that Carvana is shocking the auto industry, but folks, Carvana is shocking the auto industry.

They've acquired their second Stalantis, Chrysler Dodge Jeep Ram dealership this time in Dallas, Dad. We're going to be spending the majority of today's show talking about what is going on between Carvana and CDJR, Chrysler Dodge Jeep and Ram.

And specifically, what impact this could potentially have on Car Buying and Car Shopping and the auto industry and for us as consumers. So, Dad, I actually do think this is pretty shocking. It was only a few months ago that Carvana acquired their first

franchise car dealership, new car franchise dealership. Now, they've acquired their second, yet again, Chrysler Dodge Jeep and Ram.

Yeah, my understanding is that the first store that they bought, I think it was a Siner Chrysler Dodge Jeep and Ram in, I believe Casa Grande, Arizona, which is a few miles south of the Phoenix metro area, about 45 miles or so.

And I also think that's where Lucid's manufacturing facility is. So, hopefully, all those who build those Lucid's can go buy a Chrysler Dodge Jeep or Ram from Carvana.

That was back in March. That was back in March.

That was their first foray into new car franchises. You know, their major competitor, CarMax, had been in the new car business as well as the used car business for a number of years.

And I think it was three or four, maybe five years ago, that they sold their last new car franchise, which was a Toyota dealership in Laurel, Maryland.

The concept of selling both new cars and new car franchises with used cars didn't seem to work for CarMax.

But my understanding is that the store that Carvana bought in Casa Grande, which was one of the poor performing stores in that area, is now one of the top performing stores for CDJR in that area.

And hopefully, it's a more transparent sales process that they're using. Perhaps it's along the same lines as their used car operation, but it could benefit them nicely because it gives them access to more used cars.

A couple of thoughts. One is, I'm going to actually, after today's show, deploy our AI agent to the dealership that they bought in Casa Grande, Arizona.

So I'm actually going to deploy our AI agent and see what happens. Tomorrow, we're going to have some learnings of, are they one price? Do they negotiate with follow-up experience?

CarMax has 1% market share. There is no single dealership group that has more market share than Carvana and CarMax. They both have one to one and a half, almost 2%.

If they get into the new car business, that opens up 15 plus million cars sold annually. And if they do it differently, that's going to put tons of pressure.

Especially if they're growing and doing well, it's going to put tons of pressure on dealerships to innovate, change, and be more transparent because you got to admit, Carvana is significantly more transparent.

The price is the price. There's no haggling. There's nothing like that. I think this is a huge deal. And the fact that they're partnering with Chrysler Dodge Jeep and Ram, I wouldn't be surprised if the next manufacturer they partner with is Nissan.

They're looking at these manufacturers who are in despair and helping them sell more volume. And then to your point, that also getting their hands on more used cars. But they already acquire a lot of used cars directly from consumers.

So I think this is more a play to see if they can make money with franchise dealerships and so far so good.

But they do acquire a lot of used cars from direct from consumers. But by having franchise dealerships, it allows them the opportunity to trade for cars.

Typically dealerships trade for a vehicle at a lower price point than when they have to buy it at the auction or necessarily buy directly from a customer. It also opens up different avenues for different vehicles.

Retired service loaners.

Certified pre-owned vehicles.

Leased returns.

They could really strongly push a lease portfolio, maybe much more so than many dealerships do, with the idea of they want to get those cars back in three years because it really fits their needs for their used car business.

You know, we think of them, or I think of them, primarily as a loan originator and they use the sale of cars and trucks as the vehicle to place those loans.

Can they do the same thing at a new car franchise dealership as what they do on a used car dealership? Are they going to be using captive lenders who might have more stringent lending guidelines than their own in-house?

Let's bring this back to the consumer impact ad. Let's spend some time on that. So what impact do you think Carvana buying new car dealerships will have on you and me and everyone else that watches this show who are thinking about buying a new car the next couple of years?

Do you think it's going to have an impact there? Do you think this is kind of a non-story from like a, in our, you know, you and me? Our experience is going to change things?

I think it could. I think it could lead to major changes depending upon how many manufacturers say, yes, we would encourage you to buy some existing points. You know, there might be manufacturers out there that say, no, we don't want to have anything to do with you.

And dumb it down, Dad. I don't know if people know what points mean. So let's keep it as simple as possible.

Existing dealerships. So I know from having worked with the Penske organization that manufacturers place limits on the number of their franchise dealerships that they can have.

I remember there was a time that the Penske organization was acquiring a Honda and Acura dealership, which required the Penske organization to drop one of its or sell one of its Acura dealerships because that additional one put them over the limit that had been set for how many the Penske organization could have.

And that applies to AutoNation, it applies to Lithia, it applies to Sonic and ultimately and eventually it could and would apply to Carvana.

So there's a limit to how many dealerships of any given brand they would be able to have. But if you start in Casa Grande, Arizona, which is a small backwater town, and then your next acquisition is Dallas, well, I think that is pretty far from a small backwater town.

And if you can change sales practices in Dallas and attract more customers than the other dealerships had, then that would probably send a signal to manufacturers that, well, they're doing it a way that is increasing sales and increasing customer satisfaction.

So I think as a manufacturer, I would want to encourage them to buy more stores.

Okay, so the question was, what impact will this have on you and me as consumers? So understand that maybe you see a path here because they sell more volume, some more manufacturers might say, hey, we'll give Carvana more dealerships.

So if they want to buy them, they can have them. What impact do you think that has on shoppers death?

Well, if Carvana utilizes the same sales approach for the new car side of things, they have on the used car side of things, then you know that the price that's listed is the price that you can buy it for.

That is a certain level of transparency that we at Carage have been clamoring for for years. That is a level of transparency that I think is needed in the industry.

So if Carvana can make an impact that way, then it's going to force other dealers in its competing market areas to adjust how they sell cars.

Ultimately, it very well might mean that it becomes easier and a more transparent sales process in whatever markets Carvana has new car dealerships, and that would be a benefit to the customers.

Determinal to us won't need us good folks at Carage, but in the overall scheme of things, that would be good for consumers in whatever markets that they may be in.

Yeah, I think this is a big, big, big story. We've seen companies like Amazon get into the auto space, for example, with Amazon Autos, but really my experience of that is kind of just glorifiably generation.

Maybe in the future, it'll be more than that, but right now that's kind of what it is. Carvana, you can't deny their meteoric rise in terms of how many vehicles they've sold, how profitable they've become on every vehicle that they sell,

and how different the experience is buying from Carvana, or especially selling your car to Carvana. And CarMax, to your point earlier, had experimented with this in the past, they had franchise dealerships.

Ultimately, if they can deliver a really good experience for new cars in addition to used cars, they're going to scale this, they're going to grow, and I think it's a huge deal that they've got their second store.

And literally, excuse me, it was March, so six months ago, they purchased their first new car dealership, and now six months later, they're acquiring their next new car dealership.

You know, there's a boardroom meeting that went on that said, you know what, if we can make this thing work, let's get 100 of them, let's get 500 of them. I mean, that's what they did on the used car side, and they crushed it.

And so I think there's a huge potential impact for car shoppers, or maybe only, I don't know, a decade away from a Carvana in every city with every brand, and you can just buy cars.

They will be limited to the number of dealerships per brand that they will be able to have, okay, because there is no way that manufacturers would be able to treat them differently than they have treated other publicly owned corporations.

So there will be a limit as to how many of each they can have.

But would they impact the market areas where they do have stores for any particular brand? And I think that they would.

My suspicion, and this is strictly a suspicion, my suspicion is that they started with Chrysler Dodge Jeep and Ram, because I think they felt the customers that those brands attract fit their lending and business practices that they've shown over the years.

Because they tend to sell cars in many cases to people who are not particularly well informed when it comes to loans, APRs, loan arrangements and things of that nature.

And so people often get themselves into situations where maybe the interest rates are higher than they could be or should be.

So I think the CDJR dealerships lend themselves to that, and that's why they started with those.

But if they're serious, and it appears as if they are, if they are serious about going into the new car business, then part of that is going to have to change, and it won't just be loan originations.

We're sorry about that.

Okay, I'm going to try and keep you on track today.

That's impossible.

It is impossible.

I just, yeah, truly folks, it is a full-time job at work and outside of work.

Let's come here from John McGuire.

Thank you, John, for the kind contribution.

Really appreciate it.

Former car salesman, I bought from Carvana before the pandemic.

It was the easiest way to buy a car I ever experienced.

At a dealer, even if you offer to pay two-time sticker price, some Tower Jockey is going to send you back to get $500 more Tower Jockey, meaning the sales manager who's actually validating what price you can offer to the customer.

This is the deal, folks.

If Carvana becomes mainstream selling new cars, that will have a huge impact.

I think my dad is rightfully waving the flag with some inside baseball, which is even if Carvana is crushing it, selling the most cars of any dealership group, there are going to be caps that are placed on them by the automakers in terms of how many points or dealerships that they can have.

That being said, I think it's still a huge story, all things considered, because they are one of the easiest ways to buy.

You're paying for that convenience.

I want to be very clear.

Look at their profitability.

They make the most money on used cars sold of anyone out there, and it's not even close.

You're paying for the convenience, which is why I think Car Edge will stay around for a long, long while.

We help people get fair prices.

We help people get informed.

If you just want convenience, go to Carvana.

If you want ease of doing business, Carvana and CarMax are the ways to go.

The price is the price.

It's pretty damn simple.

You go in, you drive the car.

I like it.

Okay, I'll take it.

They do the paperwork.

You're in.

You're out because you don't get to negotiate on anything.

That's the way it's done.

Which, when you think about it, is one of the things that we've been screaming for and clamoring for for years.

Think about what we offer professionally, Dad.

We offer services to essentially operate as your executive assistant, do all the research, do all the outreach, get you the best price.

It's literally what you would get at Carvana Sands the best price.

It's just push a button.

There's a tremendous, tremendous opportunity here.

That's why I do think it is a wake-up call.

Today is a wake-up call to the industry.

It only took them six months to get enough data from buying their first franchise car dealership to buy their second.

That's a big deal and could hopefully change how this industry operates.

Not only did it only take them six months to go from one to two, it took them less than six months to improve the profitability and sales volume at the dealership that they originally bought.

What it indicates to me is that there is value into processes and they have set up the processes that they know consumers alike and consumers are willing to pay for.

They pay more for those processes that are in place.

Also from John here.

Thank you, John.

Appreciate it.

The biggest reason for Carvana Sands new cars access to the lease auctions.

We were talking about that before.

They're going to get their hands on more vehicles.

I want to come here.

They will be able, for whatever brands they will sell, they will have the ability to go to those closed brand auctions to buy those used branded cars.

All right.

Want to keep it moving?

Nope, but I'm going to keep it moving.

All right, Bob.

We've got here from Igor.

Well, look, can I clarify what that is?

Not every auction is available to all dealers.

So there are auctions that would be for BMW dealers only or for Mazda dealers only or for CDJR dealers only.

And you have to be one of those branded dealers to be able to participate and buy vehicles at those auctions.

Those are what's known as closed auctions.

And so to have access to those, they would have access to factory vehicles, brass hat vehicles, company demos that they otherwise would not have access to.

Did that make a little more sense now?

Thank you, Dad.

You're welcome.

I'm sorry.

From Igor.

Don't be sorry.

From Igor.

Zach, I shared info with you and pops about Carvana last month.

They also applied for franchise licenses with Lexus, Toyota, Volkswagen, Audi, Mercedes-Benz, BMW, and a few others.

Carvana is going all in with new cars.

That's from Igor.

So there you go.

Maybe the future is Carvana-affide or Shaq-vana-affide.

I don't know if you saw they're doing that Shaq thing, which I think is hilarious.

But anyway, it has the potential here.

Carvana opens up a Lexus dealership, a Toyota dealership, an Audi dealership.

I mean, again, they move fast, y'all.

Look at how much they grew on the used car side would not be surprised if we're talking

about Carvana opening more new car dealerships soon.

And again, kudos to them.

They figured out, to your point, Dad, processes that sell more cars we've got here from Rich.

So does Stellantis become a Carvana entity?

I thought this too, Dad.

Stellantis CDJR in the United States needs all the help they can get selling inventory.

We've talked to CDJR dealers for years and they've been denying allocations of inventory

because the cars just don't sell.

But if Carvana can start to sell them, they have some leverage on the automaker there.

So I'm very interested to see if we got some Hellcats that are coming from a Carvana-owned

CDJR or something like that.

Maybe Carvana ends up just buying Stellantis.

I don't know.

They nearly drowned in debt before.

Perhaps they want to choose to do that again in the future.

It's either you vertically integrate or you horizontally integrate.

If they vertically integrate, that means they're going to own the cars, own the manufacturing.

Who knows?

We've got a question here and then we're going to switch gears to a different topic.

This is from Money and Marathon.

It's two things I absolutely love.

It's a great name.

Is there much negotiation leverage when buying a discontinued car?

What's your take on that, Pops?

Absolutely.

And the reason there is is the dealer doesn't want to get stuck holding on to the last one.

Okay?

Now, there are some dealers and I've worked for some who believe, well, you know, sometimes

you're just better off holding on to it and then having the only one left in the country

and somebody's going to want it and they're going to have to pay your price.

But most dealerships look at it and go, it's discontinued.

We need to get it off the lot.

So as a consumer, you tend to have more leverage on those vehicles than you would on vehicles

that aren't discontinued.

I know we would have taken short deals to be able to get rid of vehicles that were no

longer going to be part of that brand's portfolio.

That makes plenty of sense, Pops.

Thank you for answering that.

And another one from John.

John, calm down, my friend.

John, you're spending too much money just to ask questions.

Thank you.

One big, do you think Carvana can figure the huge dollars in service?

Yeah, definitely.

Those are your car dealerships.

Have you ever seen a franchise car dealership without a service drive?

It's the biggest money maker there.

So this is another opportunity for them is to start making money in service.

Yeah.

I mean, this would probably require them to bring on some more industry insiders.

And what I mean by that is people who have experience on the fixed operation side of

things, parts and service.

That's not normally a concern when you're a used car dealer.

When you're a new car dealer, it's a huge concern.

I think the big takeaway here is begin to imagine a world where you could buy a used

car from Carvana, a new car from Carvana.

And your Carvana app, you could schedule your service.

You could schedule your repairs.

You could take it to the dealer.

Like I see a world, at least is how I think about it as an entrepreneur in this space.

They're looking at it as we can own the customer relationship with their car when they buy it,

when they sell it and when they own it.

And we can own the full spectrum of that lifecycle and all the interactions in it.

They're going to go deep into service.

They're going to go deep into parts.

They're going to try and control all app.

If I was Carvana, that's what I'd be doing.

And I think they're executing on that playbook and then owning the actual assets to deliver

it.

So I think, I hear you, Dad, maybe the industry take care is they're going to have to hire

some more people who do fixed apps.

The take for outsize consumers.

I think they're competing directly with like Amazon audits trying to be the hub for your

car.

And I think they've got a much better chance of winning that because they own all these

assets.

So anyway, I just wanted to share.

Well, they have a much better chance of winning it because I don't know, they've actually

been in the car business.

Exactly.

Yeah.

And I think that's the takeaway for our community here is there could be a walled garden called

Carvana.

Just like there's a walled garden with Apple.

Why on my phone do I have to have, you know, I used to have to have a lightning cable now,

fortunately, I have USB-C.

But like you get in that walled garden, they can start to just extract rent from you every

day on all your things, which gets me a little scared.

But I think that's obvious to me.

It's the strategy that they're taking over there is we're the best at customer experience

in the car business.

And we're going to do that full spectrum for everything.

Buying a car, selling a car, repairing a car, maintaining a car.

Financing a car.

That's their biggest thing, the financing, of course.

That is primarily the whole reason that they exist is they realize the money that is made

through financing cars, and then turning around and selling those loans as asset-backed securities.

For sure.

But they're going to figure, hey, hi, I'm from Matthew here.

We have switch gears.

But Pops, I paid sticker for a discounted Porsche 718 GTL 4.0.

Discontinue.

But Matthew, you're always buying niche vehicles.

And typically we're talking about mass market vehicles.

For instance, if you were an Nissan dealership and you know that the Versa is no longer going to exist come next year, do you think you're going to just say, oh, let's hold on to all the Versas we have and then maybe next year we can get MSRP and maybe more?

Or if you're an Nissan dealer, you're saying to yourself, oh my God, I got all these Versas, I got to get rid of.

The latter.

All right, Pops.

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Dude, we have to be so proud to work with them because look at this.

Jaguar Land Rover Cyber Attack shutdown continues until next month.

The same exact day that we also have Stellantis detects breach at third party provider for North American customers.

We've got these data breaches happening across the board from Jaguar Land Rover over to Stellantis.

Dude, these cars, these manufacturing processes, everything.

There's just data, data, data, data, data, data.

And we've got JLR down for over a month now trying to figure out this cyber attack.

I shouldn't be laughing at it.

You shouldn't.

I really shouldn't.

It's scary.

Well, it is scary and it's not like we haven't known for 15, 20, 30 years that there are

bad actors out there that are constantly trying to access databases for marketers, scammers,

and everyone in between.

But my point is that whoever has big data customer bases, these bad actors want to figure out how to hack into that.

Why?

Because they can get the valuable information in regards to those customers that they can

then sell that information on something that I understand is called the dark web.

I've never been there, ladies and gentlemen.

I barely use the lighted web.

But on the dark web, because there's people that'll pay gazillions of dollars for this type of stuff.

And it just always seems that the hackers are always at least one step ahead of those

who have developed the software to protect our data ASs in the grand scheme of things.

And it's a sad reality of the digital world in which we live.

And that at some point, everyone's information is going to be compromised somewhere or somehow.

So, Dad, on the JLR front, the cyber attack happened at the end of August.

And JLR factories are still closed.

So, we're at like a month of JLRs not producing vehicles because of a cyber attack.

And then obviously what happened was Philanthus was actually more customer data.

Yes.

This was a breach at one of their third-party providers that's impacting customers and customer data.

Yeah, but where they say, no really valuable information other than probably name and address,

maybe date of birth.

But nothing major, not like bank accounts or credit card numbers.

Just name and address and stuff like that.

Yeah, only basic contact information.

Who knows what that actually means.

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And you can obviously learn more about why shoppers come to CAREDGE.

First, we really encourage everyone, hey, there's my dad right there.

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Pops, that's all I had for today's show.

A little bit on the side.

I started watching The Wire.

What a fantastic show.

Have you ever watched that?

The Wire.

That was about the detectives and everything.

Baltimore, yeah.

In Charm City and all of the people who used to live.

It was on HBO, was it not?

Yeah.

No, I have never watched it.

You should watch it.

I know you've gone through the annals of all the streaming services.

I think you could get into The Wire.

I am pretty sure when it comes to streaming services, there isn't a program or a show that I haven't seen.

But apparently there's The Wire and I need to see that one and maybe I will.

And like somebody said, yeah, the show's 20 years old, but don't worry about that.

It's still, it's really, really, really good.

Okay, Pops, let's call it a show.

We'll be back tomorrow with more CarEdge Live.

I'll actually be doing it from New York tomorrow, so look forward to it.

Oh, I can't wait.

Did you figure out what TV show you're going to be on tomorrow?

No.

Okay, perfect.

We'll look forward to seeing you on some station in New York at some point in time.

I can't wait.

Love you, Pops.

Love you too, handsome.

Talk to you later.

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