Franchised car dealers have watched online used-vehicle retailer Carvana expand rapidly since it was founded in 2013. With sales of 94,108 vehicles in 2018, Carvana came in at No. 8 on Automotive News' list of the top 100 retailers based in the U.S. ranked by used-vehicle retail sales. The company's vehicle sales more than doubled last year, and that pace has continued in 2019.
While Carvana is still not making money, its speed of growth isn't surprising. It's in part testament to the power of good word of mouth. I've seen it unfold firsthand in Atlanta where I live.
As a member of some neighborhood Facebook groups, including a very active moms' group with thousands of participants, I see Carvana come up time and time again.
Every single time someone poses a "where should I buy a car?" question (and it's frequent), the dominant answer is Carvana. Negative or mixed experiences are sometimes shared. But most of these threads end up being Carvana cheerleading, complete with comments like, "I'm never going to a dealership again."
And since these people already trust each other -- because they've successfully traded doctor recommendations or shared advice on a kid's rash or, in many cases, become friends -- it's really powerful stuff.
Carvana CEO Ernie Garcia, on the retailer's first-quarter earnings call last week, described Atlanta as the company's most mature market. But even in Atlanta, he said, most consumers are still not aware of the company. Just one in 14 people in this market named Carvana when asked to list places they could buy a car.
Garcia's take on that? "We are just getting started, and our runway is long," he told analysts last week.
There's a lot to be debated about Carvana's model -- When will they make money? Are they overspending to carve out a market position? -- but there's no denying that the company is now a force in used-vehicle sales.
Testimonials from the moms next door are part of that success.
Franchised dealers should be aware of what they're up against.