How Internet car dealerships are faring in a post-COVID world
A few years ago, in the heat of the pandemic, with uncertainty at every angle, a new kind of car dealership was born. One that skipped all of the in-person aspects of car-buying, adhered to COVID distancing regulations and allowed people to do all the research they wanted online to and the right car. It seemed like the right idea at the right time and that it couldn’t fail.
But it’s been a mixed bag of results. Perhaps some of those operations didn’t consider how the end of COVID restrictions would play out. They may not have thought about the realities of carrying millions and millions of dollars of vehicle inventory. Or, maybe, they just didn’t have a plan. Some have thrived, some have dived and there are those that are hanging on by the skin of their teeth.
The difference? It’s about the model.
All is not the same in internet auto dealerships. While some believe in profits at any cost and may have put some dealerships out of business in their prime time, others look to be support systems that allow everyone to get ahead as the old system gradually moves into a new way of doing things.
Matt McKenzie, founder and CEO of CarDoor (currently only in Ontario, but on the launch pad to other provinces) says while unfortunately, some traditional dealerships didn’t make it through the challenges of COVID and post-COVID, he’s proud that his model isn’t designed to put dealers out of business, but rather to support them.
“All of the vehicles that are on our platform are from dealer partners,” he explains. “No different from a Car Trader, Kijiji, Auto Trader.”
He should know, he ran Kijiji for five years and got to know the auto side of that business. He saw that there was a way to support both existing dealers and eliminate the pain points of consumers. He launched CarDoor in July 2020.
The CarDoor model
“There was just another, a better, way to bring a digital retailing solution to the market, but support the dealers,” he says. “Our model is quite unique.”
Unlike other internet retailers, CarDoor doesn’t hold the inventory. They represent the inventory of dealers to consumers and consumer to dealers through online platforms, but don’t actually purchase the vehicle until a confirmed offer is in place. This may be the reason why CarDoor is still in the market, while others are not; or are struggling. Not only does this type of model help dealers gain inventory, it helps sell the vehicles they want, when they want.
Through CarDoor, dealers sell vehicles to consumers; bid on and buy consumer vehicles; bid on and buy repossessed vehicles; and receive referrals for service on vehicles purchased through CarDoor. It’s free to use the CarDoor model, but not every dealer qualifies. McKenzie and his team want dealers that believe in transparency and honesty as they do. They’ve had to refuse some dealerships on that basis.
The entire transaction is managed through CarDoor and the buyer never knows who the dealership is.
“We just pick up the vehicle from the dealer, buy the vehicle from the dealer and then sell it to the consumer,” he says.
The income for dealers is in a savings on sales commissions as they get the full list price on the CarDoor platform. Vehicles are covered by CarDoor’s 14-day money-back guarantee as well as the 60 and 90-day warrantees.
Where internet dealers fell apart
Other internet dealers have exited the market. Canada Drives, may have held on to their “the easiest way to buy or sell a car” tagline online, but as Scott Brown, VP of Operations with CarDoor explains, they have led the retail space and have reverted to generating leads. “For years, they have been the largest player in selling leads to dealers for finance companies,” he says. “We saw Canada Drives drop the whole retail side altogether.”
With that type of model, where the company wants control of the entire process from beginning-to-end in order to generate the most income, there is no option but to carry inventory and bring all of the tasks associated with the car sale in-house. CarDoor has taken a different path that allows them to keep overhead low, ensure ongoing relationships with dealers and earn a smaller amount per vehicle sold.
Brown says that there is no choice but to carry millions of dollars of inventory when control and higher per-car profits are the objective.
“You need a lot more cars than a typical dealer does,” he says of some internet dealerships. “Let’s say we have 1,300 cars on our site, give or take. That’s 30 million tied up. That’s the difficulty they faced.”
It put those types of dealerships in direct competition for vehicles with traditional dealerships. In the CarDoor model, because all vehicles are dealer-provided, there is no competition. The internet buyer CarDoor serves is unlikely to be the same buyer that would walk on the traditional lot. In this way, CarDoor is able to complement the traditional dealership, rather than compete.
“We’re happy making our money,” he says. “We don’t need to capture another two or three-thousand dollars on the sale of a vehicle. We are specifically targeting the customers that are buying online.”
Considering the numbers
The need to increase the profit per vehicle has hurt players that made a big splash initially, like Carvana. Reporting yet another decrease in units sold (76,530 a decrease of 35 per cent), for 2023 Q2 results, a revenue decrease of 24 per cent isn’t surprising, but the gross profit increase of 26 per cent ($499 million) is. It’s an increase of $3,152 profit per unit ($6,520 per unit total) and it’s only a matter of time before customers recognize and don’t want to pay that amount.
Chances are, many have already figured it out. While some don’t care and some don’t have alternative options, others will revert to local dealerships. But, the desire to purchase online, without hassles is real for consumers.
“We pride ourselves on a white glove, very transparent process for our customers and the same for our dealers,” says McKenzie.
He says that pre-COVID about 50 per cent of consumers were open to the idea of purchasing a vehicle online. Now, post-COVID, more than 80 per cent are both open to and willing to buy a vehicle online.
“There’s a comfort level,” he says. “We’re talking about gen Ys and gen Zs. They don’t negotiate. They want easy.”He ads that while many players in the space have led to bad press about internet buying, this hasn’t resulted in a reluctance to buy from CarDoor. “We’ve seen none of that,” says Brown. “I think it speaks to the acceptance [of internet buying].”
He and McKenzie both see the traditional dealership existing well into the future.
“I don’t think they need to be too worried about a completely digital dealer coming out,” he says. “What traditional dealers are going to do and continue to do is evolving to figure out how to satisfy their customers.”
New buyers will want a less hands-on approach and dealerships need to fund ways to accommodate this, whether with a partner like CarDoor or another way. It will require planning and a consideration of those who want to be on-the-lot and who don’t. While this change is coming, there is time to think, plan and partner.
