Guest commentary: Despite Carvana's woes, online vehicle sales are just getting underway

For a company that not long ago had a higher valuation than Ford, Carvana has taken a mighty fall — to the edge of bankruptcy, according to many experts. Carvana's stock fell a whopping 98 percent in 2022 — and may not yet have seen bottom. Even if the company manages to rehabilitate itself, analysts are recommending that investors stay away from its stock.

Until recently, Carvana was the most popular online vehicle sales site in the U.S. enabling consumers to buy used cars. Seen as a disrupter in a very conservative industry, its innovations include towering vending machines that dispense purchased vehicles. Now, with Carvana facing a plunging stock price, a surplus of vehicles it can't sell and a cash crunch resulting from rising interest rates, it looks like the end for the online vehicle sales site.

Carvana apparently also made a lot of mistakes in the way it handled sales, but its online sales model was not one of them. Polls indicate consumers prefer to buy their vehicles online.

A study by insurer Progressive, for example, shows that 20 percent more people who bought their cars online were satisfied with their purchasing experience than those who bought in-person.

Other bright spots the study revealed were trade-ins, with 80 percent of respondents saying they were "highly satisfied" with the online experience compared with 57 percent who said the same about the in-person experience, and financing, with 70 percent indicating they were "highly satisfied" with the online experience compared with 53 percent who said the same about their in-person dealership experience.

Clearly, the idea of online vehicle sales has a bright future. If Carvana will not be the flagship of that movement, others would be happy to step in. Truecar Plus, for example, offers online sales of vehicles for residents of Tampa, Fla., with plans to expand, while others, such as Shift, Carvago and Carmax provide online sales for buyers of used cars.

Dealers, too, are moving their businesses online, looking to take advantage of the desire of consumers to simplify the buying process — making pricing more transparent and financing easier and by reducing haggling. Automakers are also moving toward online car sales, although many states still ban direct sales to consumers.

With that, some buyers may be scared off online sales because of Carvana's troubles. That, combined with the idea among many that cars need to be bought in a dealership, could hamper the growth of online vehicle sales. By emphasizing the benefits of online purchasing — less hassle and less haggling, more time saved, straightforward pricing — online sales sites, dealership-affiliated sites and even automakers will be able to increase their customer base and expand sales.

To accomplish that, online vehicle sales operations will have to ensure that titles are transferred quickly and efficiently, that financial transactions are conducted transparently, that vehicles are in good condition both mechanically and externally when received by customers, that delivery can be made within a reasonable time frame and that financing and insurance options are readily available.

Advanced technology, especially artificial intelligence, can help sales sites accomplish these goals. Blockchain technology, for example, could ensure proper chain of custody transfers so that titles don't get lost, as many apparently did with Carvana. Analysis of sensor data could pinpoint specific issues for potential buyers in advance, such as repairs they would have to make. Consumer-facing AI, including chat and messaging tools, could provide more personalized experiences.

Advanced inspection technologies, including high-resolution photos, could provide not only a clear picture of the condition of a vehicle, but even reveal a vehicle in poor condition or parts that need to be repaired or replaced using AI analysis. These technologies provide greater transparency and ultimately help sellers fetch higher prices, but in a more seamless way than today's manual transactions. In a recent study, dealers assessing consumer vehicles using Ravin AI's inspection tools were able to offer on average $500 more per vehicle compared with those assessed using standard industry tools. More information about this study will be shared soon.

As more startups and dealers utilize such technologies, dealers will be more amenable to purchasing used consumer vehicles or conducting trade-ins online. In addition, laws banning direct sales by automakers are likely to change, opening up a whole new way for manufacturers to sell cars and purchase trade-ins.

As all of these changes happen, one thing is clear: Online sales sites will still have to provide consumers with a buying experience better than the one they could get in a physical dealership. With advanced technology, any enterprise that sells cars will be able to accomplish that.