After a decade in business, online used vehicle retailer Carvana can, for the first time, register to benefit this quarter While the company and its towering vending machines that dispense vehicles bought online created a lot of excitement around a new way to buy, sell, trade and finance used cars, it has clearly struggled with its model of business
Carvana is not alone; in general, used car dealers and auto auction companies continue to struggle with digital transformation, even as consumer demand increases. The difficulty in building a profitable online model stems primarily from the fact that used car inspection and valuation has long been a brick-and-mortar, in-person type of business; State laws that require ink rather than digital signatures and other red tape can also add extra in-person steps.
But that is changing. New technology is making it possible for used car dealers and auction companies to move their businesses online and still make a profit. In addition, regulatory changes that are eliminating in-person signatures and other tasks are paving the way to make online vehicle transactions ever more seamless. Online transactions will undoubtedly be an important element of success for both dealerships and auto auction companies, so it is essential that they figure out how to do them efficiently.
The power of computer vision
Putting the right number on both the purchase and sale price of a used vehicle is crucial to the success of any dealership or auction company. When done right, used car sales have historically been more lucrative for dealers than new car sales. In fact, profit margins in used cars they are between 10% and 12%, more than double the average range of new cars. Advanced technology can further increase these margins by reducing operating costs and improving pricing.
Until recently, dealers had to physically inspect cars, as well as consider their accident history, repairs and other factors, to understand their value. Not seeing a car in person has long been a risk. But computer vision tools, which can be easily used through mobile apps to scan vehicles and upload the images, allowing dealers and car auction companies to view and appraise cars remotely, solve this dilemma. In addition to providing images, these systems can detect damage and irregularities faster and more accurately than humans, allowing for a more efficient and accurate basis for determining a car’s condition and value. Other AI and data analytics tools can provide estimates of how much it would cost to repair or replace parts, which helps dealers figure out how much they should pay for used vehicles and how much profit they can expect to sell to others after to have done them they are reformed
Regulatory changes that transform the landscape of online sales
Regulatory changes are also slowly removing barriers to selling used cars online, potentially changing the game for dealers and auction companies. Several states have already done so Removed, or are considering eliminating, requirements for a “wet ink” signature for vehicle purchases. This would allow sellers and buyers to complete the entire transaction online and receive their vehicles in their driveways, without having to go through a Carvana dealership or vending machine installation to sign the documentation. Eliminating the need for in-person signatures and other processes reduces friction for consumers and improves efficiency for dealers and auction companies. Distributors and banks, as well as other financial institutions, are increasingly working together to package online used car sales together with online financing; this cooperation is necessary for dealers and other auto dealers to become the one stop shop, online only companies that consumers demand more and more.
Another change that could transform online car sales, or at least light a fire under dealers who want to succeed, are proposed laws that would allow OEMs to sell new vehicles. directly to consumers Many analysts say that is unlikely to happen in most states, as distributors have traditionally been well protected by laws that prohibit direct selling. But it’s something auto dealers and auction companies should consider as potential competition in the future, since direct sales of new cars would likely also mean direct trade-ins and purchases of used cars from automakers. automobiles
In fact, automakers are already moving more into the online used car space, with General Motors and Ford both recently launching sites that connect consumers with used vehicles in certified dealers. This increased competition highlights why independent dealers, auto auction companies, and other automotive remarketing players need to build successful online businesses.
Distributors should not rely on regulators to protect their traditional business models; rather, they should focus on finding a way to build the auto-buying experiences that consumers and B2B customers are demanding, while turning a profit.
Eliron Ekstein (pictured left) is co-founder and CEO of Ravin.ai, which uses AI to track vehicle health.
