The U.S. used car market
The U.S. used car market remains a major leader of the American economy In 2018, over 40 million used vehicles were sold in the United States , which translates to approximately one used car bought for every 6.3 Americans that year. However, this market is still very fragmented and inefficient – more than 43,000 dealerships in the U.S.- and the buying experience is often a hassle.
This experience often involves facing a pushy salesman, a limited selection of cars at the dealership, uncertainty over the car’s quality and history, and limited financing options. Studies have shown that 81% of consumers do not enjoy the car-buying process , and only 8% judge the salespeople are highly trustworthy . Overall, this amounts to a real “buyer beware” situation for an industry strongly in need of modernization.
Carvana: A peer-to-peer marketplace for used cars
Founded in 2013 in Tempe, Arizona, as a spin-off of the car reseller DriveTime, Carvana was born with the intention of revolutionizing the used car industry. The company defines itself as a direct-to-consumer, used-car-only retailer. Its intentions are to bypass the traditional dealership infrastructure, to create a business model with reduced overall costs and to pass the savings on to the consumer through lower prices with no hidden fees and a better customer experience.
A revamped customer experience powered by improved operations
With the focus to improve the whole customer experience, Carvana’s founders successfully brought digital innovation to the industry. In the most recent quarter, Carvana posted incredible yearly revenue growth of 108% and total gross profits of $137.8 million. This represents an increase of 181% compared to Q2 of 2018 and the company’s 22nd straight quarter of triple-digit revenue growth .
The company applies new technologies both to improve its online platform and its operational network. The key elements of Carvana’s differentiation are listed below:
- Car acquisition: Carvana developed a proprietary vehicle-acquisition algorithm to optimize its holding inventory to fit customers’ needs. Some of the inputs are car-quality screening and demand forecast, through historical data and clickstream.
- Car availability: As of September 20, 2019, Carvana lists 20,000+ cars on its platform. With only 11–100 cars available at typical dealers Carvana clearly surpasses the traditional used car industry on the point of car availability.
- Expert network and patented 360-degrees digital tour: Carvana offers 360-degree used vehicle digital tours to its customers. These high-definition photos highlight features, imperfections, and detailed interior and exterior views of every vehicle, giving customers a transparent virtual vehicle tour experience.
- E-commerce: Carvana value lies on its e-commerce platform. Thanks to its intuitive user interface, any purchase can be completed within 10 minutes online once a car is selected.
- Financing platform: Carvana offers auto loans to its customers, breaking down the financing barrier and diversifying its revenue sources. This service makes it easier for customers to gain access to personalized financing terms without hurting their credit score.
- Pick-up and delivery: Carvana owns an in-house logistic network. Cars can be delivered to as early as the day following the purchase. To complement its logistic network and offset some of the costs of delivery, Carvana also encourages customers to pick up their cars in one of Carvana’s proprietary “car vending machines” offsetting up to $200 from customers’ travel fares and boosting word of mouth. In both scenario, the company offers its customers a 7-day Money Back Guarantee.
- Marketing through social media: Carvana employs digital technology to market its services to the public. While the company publishes trendy and targeted marketing videos online (see “That didn’t suck” video below), it also enjoys the benefit of word-of-mouth marketing. Indeed, many customers like to share their experiences online, as there are numerous videos on YouTube of customers picking up their cars in vending machines or receiving outstanding delivery services.
Carvana: the Amazon of cars?
Carvana is rapidly growing its service offerings, hoping to become net positive in the coming years and to be able to compete with its main rival: Carmax. It is interacting with more customers and scaling operations to support its 95% growth in retail sales by bringing its expected end-of-year coverage to 140–145 markets and its total U.S. population coverage to approximately 67% .
However, the company’s net loss also seems to grow proportionally: in the latest quarterly report, Carvana’s net loss was $64.1 million, an increase of 25% year over year. In this new digital market where companies are growing at any cost to grab as much market share as possible, it is unclear where Carvana will end up in a few years. One thing is certain: its contribution and impact on the U.S. used car market are undeniable.
 Static.ed.edmunds-media.com. (2019). Used Vehicle Outlook 2019. [online] Available at: https://static.ed.edmunds-media.com/unversioned/img/industry-center/insights/2019-used-vehicle-outlook-report-final.pdf [Accessed 21 Sep. 2019].
 Dealer Socket 2016 Independent Dealership Action report – Represents North American Consumers
 205 Gallup Poll
 Carvana Letter to Shareholders Q2 2019
 2016 NIADA Car Industry report