Shift Finance targets dealerships, private sales

Captive lender Shift Finance, and its parent, peer-to-peer used-car marketplace Shift Technologies Inc., have high ambitions.

Through extensive use of online and mobile technology, they aim not only to beat auto dealerships on price and convenience but to supplant private sales by offering inspected, reconditioned cars, plus financing, says Peck Yang, 26, co-founder and product manager of Shift Finance.

Since its launch in November 2014, San Francisco-based Shift has offered car buyers access to direct loans through partnerships with credit unions and independent finance companies. Its partners include First Tech Federal Credit Union in Mountain View, Calif., and Denver-based Autopay, which, along with offering loans to Shift customers, provides the technology platform Shift uses to connect applicants with lenders.

Shift Finance launched and began providing its own auto loans in March. Shift has a presence in California, Virginia, Maryland and Washington, D.C., with plans to expand on both coasts, Yang said. He declined to provide sales numbers.

Special Correspondent Jim Henry spoke with Yang by phone last month.

A: We’re a P2P marketplace, where we connect buyers and sellers. The twist is we take physical control of the car from the seller.

For the seller, we inspect, recondition, detail and take pictures in preparation for marketing that car across our website, across the mobile app, across listing sites — every site possible where it can be listed.

A potential buyer finds that vehicle online. They can schedule a test drive to learn more about that vehicle. The test drive is at the buyer’s choice of location. To facilitate the test drive and to answer questions, we send one of our reps, called car enthusiasts. Typically they are noncommissioned reps who are very passionate about cars.

Who sets pricing?

We guarantee the seller a minimum amount. When the car sells, any amount above that amount, we split with you. It’s basically a consignment model.

At what point is financing brought in?

If they choose to proceed with that purchase and if they indicate they need financing.

How does Shift Finance’s lending model work?

It is direct [to consumer] lending. We are signed up with credit unions, third-party partners like Autopay, and, as you know, we are starting to offer our own captive financing as well.

Who funds the captive-style loans?

Right now we manage the entire process, from funding to underwriting to fulfillment. For sure, we’re going to — we’ve got to — diversify our funding sources. But getting started, we’re using our own internal capital.

Who owns the collateral?

The seller owns the car right through the process, until the seller sells it directly to the buyer, without a dealer as an intermediary. That way, they get the best economics.

What is the economic advantage?

Because we are able to verify the asset — we really get to know the asset and the seller, the way the process works — we’re able to offer financing where maybe others couldn’t. We can also help the seller get the best offer and help the seller and the buyer with an easier purchase process. It’s easier than doing it on their own, and it’s easier than going to a dealership.

Our goal is to reduce inefficiencies around connecting supply and demand — to enable people, if they wanted to, to buy cars as quickly as 15 minutes.

How’s business going? How’s volume?

We’re expanding. It’s going well. We’re one of largest used-car sellers in the Bay Area; we’re selling more than most dealerships.

Who are Shift Finance’s competitors: dealerships, private sellers or both?

It’s both. We’re trying to offer the best of both worlds. People buy and sell privately because they want the best price. People go to dealers because they want to make sure the cars are inspected, reconditioned and that there’s access to financing. What we’re doing is leveraging technology to control our costs.

So far, are Shift Finance’s captive finance customers subprime, near-prime or prime?

It’s too early [to generalize]. Because we have more data about the customer, because of our direct interactions with the customer, we can make more refined underwriting positions.

We could provide loans that generally other lenders might not because we can more accurately assess risk — like [for] new customers, or millennials with limited credit history. We can understand the customer more fully.