Just five years after its launch, one auto company is aiming to be “Amazon for cars,” and believes a partnership with credit unions is key to achieving that goal.
Tempe, Ariz.-based Carvana launched in 2013 in the Atlanta market and has since expanded to 45 markets nationwide, according to Chief Product Officer Dan Gill. “We had more than $900 million in sales on an annualized basis through the third quarter of 2017.”
The company went public in 2017, as well.
One of the biggest obstacles Carvana has had to overcome is consumer perception. While many shoppers continue to try out small-ticket items at brick-and-mortar stores before returning home to buying said items online, the same purchase process generally has not been associated with automobiles.
According to Gill, Carvana’s management team has thought extensively about how to shift car shoppers’ mentality. “It is woven into our value proposition. There has never been a way to close the loop completely online.”
Gill said change has come already. He pointed to data that suggests 97 percent of people now start their auto purchase research online.
“That has taken over how buying a car starts,” he said, adding 54 percent of people test drive zero or one vehicle in advance of purchase. “There is a psychological attachment to saying one needs to test drive several vehicles before making a purchase, and people believe that, but the data suggests it is not true.”
Gill said Carvana should be thought of as “Amazon for cars,” alluding to the online shopping powerhouse.
“We give people 7 days with the car. We have more than 10,000 cars in our inventory. You can buy a car completely online on our website. We offer financing, and we can make a firm offer for the shopper’s current vehicle. People can complete their purchase just like any other e-commerce entity.”
Aiming to be a partner, not a competitor
From the credit union perspective, financing options offered at dealerships represent a significant barrier to capturing new car loans. Gill insisted Carvana is not a competitor to CUs.
“Our founding philosophy is to put the customer in the middle of all of our decisions. The customer experience is in mind,” he said. “So many customers have a lending relationship that is meaningful, and of course they started their buying journey by getting pre-approved at their credit union. We do pre-financing that allows credit union financing, then we do a co-branded Carvana experience.”
When Carvana partners with a credit union, the CU’s pre-approved lending terms are applied to all of Carvana’s vehicles, since the person is shopping on Carvana’s website, Gill explained. If the consumers is pre-approved for up to $24,000 at 3 percent APR, Carvana applies that maximum approval amount, with the possibility to pay cash for the difference if the buyer wants a more expensive vehicle.
Carvana has custom-built a product for its current 35 credit union partners – a number Gill said is growing – including $8.6 billion Randolph-Brooks FCU in Texas, $3.6 billion Tinker FCU in Oklahoma, $5.5 billion Delta Community CU in Georgia, and $4.3 billion Desert Financial FCU in Arizona.
“Our model is aligned with credit unions,” Gill said. “We roll out our business one market at a time. We do targeted marketing in the geography where we are present. Credit unions tend to have geographically centered memberships. They also have a reputation for great service and great rates. We align with that credit union philosophy. We know not every Carvana customer is going to want to finance with us, but we want to add our technology to align the online shopping experience.”
There is “no chance” for a credit union member using the co-branded Carvana site to be flipped to other financing, Gill insisted. He said when the consumer is inside the co-branded experience, Carvana financing is not offered.
“When the pre-approval comes from one of our partners, the financing is blocked,” he said. “In some cases, if the credit union turns down the member for financing, we can help by offering alternative financing – so the credit union does not have to say ‘no’ to the member. We are happy for the credit union to be the lender in most cases, but we can help in those other cases, as well.”
The company also handles title and registration details for customers purchasing through the site.
No questions asked
Carvana’s business model does not lead to a high rate of returns, Gill said, pointing out that buyers have up to seven days to ask the company to take back the car with no questions asked.
“The return rate is in the mid- to high-single digits,” he reported. “In most of those cases they are just looking for a different vehicle, not a full return, and we are happy to do so.”
According to Gill, Carvana is a different type of entity than cars.com or True Car, which has worked with some CUs. He said those two businesses are marketplaces or lead generation sites consumers use to find a dealer and then go through a traditional offline transaction, whereas Carvana is self-service end-to-end, with no haggling.
“Our prices are completely transparent, and about $1,400 cheaper than the Kelley Blue Book price. We do not incur the traditional expenses of a dealership, so we can pass those along in lower prices.”
Some credit unions have asked Carvana to address the CUs’ limited remarketing capabilities. When they have to repossess a car, that car belongs to the credit union and they have trouble selling that car to someone else. Gill said the company can provide instant valuation on those assets and can help with the remarketing process.
“The credit union relationships we have forged have been symbiotic in many ways – they have been great for our company, great for the credit union and great for the members,” he said. “Our Net Promoter Score is higher than Apple.”