Have you noticed Vroom’s IPO? Both Vroom and Carvana are valued in the billions. Neither has made any money, nor by their own admission plan to for the foreseeable future. Remember the dot.com bubble of the late 90’s? Here we go again. Investors watched the huge returns of Amazon and Netflix. They’re hungry for any company that goes public with an online “disruptor” label. Nikola, another recent IPO, is now valued at $30 billion – $2 billion more than Ford. Nevertheless, Nikola has yet to deliver its first truck. Henry Ford must be rolling in his grave, but that’s a subject for a later discussion.
Vroom and Carvana claim to be disruptors of the used car market. Hold on for a moment. What about new car dealers? Are they going to cower in fear and fold their tents? I don’t think so.
Not only can new car dealers also deliver a used car, or new car for that matter, door-to-door, but they have numerous natural advantages. New car dealers, not necessarily dependent on auctions like our online wunderkinds, have access to the best inventory and can offer factory certifications as well. They don’t have to incur the extra costs of shipping out reconditioning to a third party. Should the buyer want to make certain his or her rear end fits comfortably in the driver’s seat, a test drive is easily arranged. Let’s say the buyer can’t figure out how to pair a cell phone or experiences a balky door lock malfunction. Those are quick and easy fixes at the local dealer. How about the online dealer? Forgetting the irritation, who you gonna call?
Many people want to buy the most their pocketbook can handle. No matter how many thousands of dollars are involved, most want the security of buying local from a dealer that’s been there and done that. Remember the old saying? "When you buy a used car, you’re buying someone else’s problem.” That isn’t so true today with cars lasting a lot longer. But given the choice, wouldn’t anyone prefer the extra security of making the purchase from a local dealer?
How can the disruptors' economics work? They’re acquiring and delivering used cars while sacrificing lucrative parts and service business. At the same time, they’re facing off against those wily new car dealers.
Getting back to the late nineties, anyone remember CarsDirect.com? Twenty years ago that too was a high-flying disruptor. They told us brick and mortar dealers were dinosaurs. The only thing disrupted were the millions of dollars naive investors lost with that woebegone stock. Vroom and Carvana could surely leave investors walking, instead of riding in the perfect car they could have bought at their local new car dealer.
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