Carvana’s new sales strategy turns the dealership into a ‘playground’

DALLAS — Carvana It aims to bring its online strategy for selling used vehicles to new car and truck sales.

But don’t expect the company to actually sell you a car in one of its seven cars Stellantis Franchise agents.

Instead, the online auto retailer said it intends to use such dealerships as service locations, test-drive centers and perhaps “playgrounds” for consumers to decide which vehicle they want to buy through Carvana’s online platforms, marking a stark contrast to how traditional franchise dealers handle new products.

“Every car we sell, whether used or new, is available online,” Tom Tyra, Carvana’s president of special projects who leads new vehicle operations, told CNBC during an interview at its Texas franchise. “That’s a very inherent difference. Even when you walk into a store, you’re buying it online, and that’s a big difference in how people think about it.”

Through its used vehicle sales, Carvana has become the most valuable auto retailer in the United States with a market value of more than $70 billion. Carvana’s goal with its new vehicle business is to grow its market share and customer base as well as assist with used car sales through trade-ins and other means, according to Tyra.

If the company succeeds, the strategy could have a ripple effect across the U.S. franchise model, which the National Automobile Dealers Association says includes 16,990 retailers whose sales exceeded $1.3 trillion last year.

This week marks the first time Carvana has spoken publicly about its new vehicle plans since it purchased its first store, a Chrysler-Dodge-Jeep-Ram franchise, for Stellantis early last year in Arizona. Its network has since grown to other popular Carvana markets in Sacramento and San Diego, California. Dallas. atlanta; cleveland; And Boston.

“When we got into new cars, we said the only way we were going to do that was to make sure they ran the Carvana way. We sell cars the same way we sell used car customers,” Tyra said during a media event at her Dallas location. “Why break something that already works?”

Carvana spent approximately $171 million on its acquisition of new Stellantis auto dealerships, excluding its recent purchase of the retailer in Ohio, according to public filings. The company declined to disclose any other investments in stores to implement its strategy.

Taira and the company also declined to disclose Carvana’s new vehicle sales to date or future expansion plans for additional brands or other Stellantis dealers. CNBC previously confirmed that the company has rapidly increased its new vehicle sales, including its Arizona location to become the nation’s top-selling Stellantis dealer.

“We think it was worth it for us, as long as we could go out and increase the share and increase the pie,” Tyra said. He declined to comment on whether the new car business was profitable.

To be able to integrate its new car sales into its existing website, as first reported by CNBC, Carvana was approved as an authorized website provider for Stellantis rather than using commissioned third-party companies. Several franchised dealers said they thought this was a unique benefit to Carvana.

In a statement to CNBC, Stellantis said Carvana acts as the “institutional owner” of its brands, similar to other large, publicly traded companies such as Lithia and Automatic nation.

“We apply the same consistent criteria and criteria to all dealer partners, and any organization that meets our qualifications is eligible to serve as a franchisee,” the automaker said, adding that Stellantis “certifies tools and services that will enhance our program and be beneficial to our network. All approved service providers must complete a rigorous qualification process and meet the program’s standards and requirements.”

Carvana is using a Dallas location as a testing center for its entry into the new car sales market. From the outside, the facility looks like a traditional Stellantis dealership, but the process of a consumer purchasing a vehicle and the responsibilities of its employees are unprecedented.

Sofas and chairs replace cubicles and sales desks. There are no finance and insurance departments, and instead of an army of employees on commission, the facility has associates paid hourly to help clients — if they want help.

The experience is meant to be as self-guided as the customer wants. By scanning QR codes on 10-by-10-foot screens inside the building or on vehicles and displays outside, shoppers can customize the vehicle, learn about product features and take test drives before deciding to purchase anything. If they decide to buy something, it will be online and not from a salesperson, the company said.

The stadium contains approximately 50 vehicles divided by brand, each with a special theme. Jeep has an off-road offering. Dodge has race tracks, including a Carvana-themed Charger and part of a traditional track fence. Meanwhile, Chrysler’s minivans have a soccer grid and a truck-centric Ram Zone.

Carvana is not committed to expanding the exact experience to other franchised dealer locations, but Taira told CNBC that the overall process for online sales, vehicle testing and service is expected to be consistent across the locations.

“I think the business case and the case for the additional stores comes through with this location first,” he told CNBC, adding that she built the store in weeks. “Is it important for us to launch a second version? No, I think what is important is that we do it right… There is no giant plan to build drive-test centers everywhere.”

Once a customer decides to test drive or even purchase a car from the site, the process can become more complicated, depending on the model the consumer wants.

The company chose to purchase Stellantis dealerships for the automaker’s wide range of brands as well as a variety of products, which can be a double-edged sword when it comes to consumers actually finding the specific vehicle they want to test drive or buy, Tyra said.

Unlike a traditional dealership that stores vehicles for customers to test drive before purchasing, at Carvana’s Texas facility, there are approximately 50 display vehicles in its field, with two test drive doubles. It had nearly 3,000 new vehicles for sale nationwide compared to more than 60,000 used models as of Wednesday morning, according to its website.

This means that the customer may not be able to test the specific car or even model they are purchasing, but the online process attempts to match the best possible test drive car to what they want. It also describes what is the same and what is different.

Looking at the Texas site’s system for vehicles like the $87,000 Ram 1500 RHO performance model, the closest thing on site for a test drive was a nearly $61,000 Ram 1500 Big Horn with the same interior and four-door configuration but no other identical features, including the performance engine.

That’s why traditional auto dealers have a large inventory of vehicles, especially for pickup trucks that have a wide range of build options and a wide bandwidth of performance specifications.

Carvana continues to take lessons learned from its more than a year of experience selling new vehicles into its daily operations, Tyra said. He said the company is learning what vehicles to keep in inventory, and is working to make sure customers know they are purchasing a new vehicle rather than a used vehicle.

“We’re going through all this technology. This is brand new,” Tyra said. “All of these things are active, which means how much progress we will make over the coming days, weeks or months.”

The company prioritizes new-vehicle sales to local customers, as it does with used vehicles, to avoid additional costs, but uses its nationwide logistics network and more than 100 Carvana locations in the U.S. when necessary, Tyra said.

The main question asked by Stellantis franchise dealers and Wall Street analysts before Carvana unveiled its new vehicle plans was how the company planned to service the new products it sells.

For now, the company will run its service departments operationally like a traditional franchise dealer, but with its guiding strategy of transparent, no-haggle pricing and a “hassle-free” customer experience, Tyra said.

“In terms of how the service is actually provided, it’s traditional. It’s a traditional setup that way,” he told CNBC. “In this way, what we do…in terms of service, we believe in the same principles that we do in selling cars.”

Ultimately, selling cars is Carvana’s core business, but vehicle servicing has historically been a lucrative market for franchised dealers, along with customer financing, which is what Carvana has always focused on in its business.

Like its used cars, Carvana currently only accepts cash or offers financing through the company itself, including selling the consumer auto loans it originates to institutional investors and partner banks, such as Ally Financeto maintain liquidity.

Tyra did not rule out the possibility of offering Carvana for lease or using Stellantis’ financial services, which have been highly profitable for automakers, but said the offerings would need to integrate seamlessly into existing online selling platforms.

“Part of what makes this great is what we already know,” he said. “What we already know is the system we have.” “That doesn’t mean that integration isn’t something we’ll be part of our learning and experimenting with moving forward.”