In 2013, Carvana made its entry into the used car market and has since transformed the traditional car purchasing experience in the United States. The company, which is based in Tempe, Arizona, offers a straightforward, no-haggle pricing system and an online purchase method that removes the uncomfortable negotiation often encountered at dealerships. Customers can browse and buy vehicles from the comfort of their homes, even opting for home delivery.
Ernie Garcia, the CEO and co-founder of Carvana, emphasizes that the company can maintain lower operational costs compared to typical dealerships because it does not rely heavily on real estate. Carvana operates 17 centers across the country where vehicles are reconditioned before they are sold. To date, the company has successfully sold approximately 2 million vehicles, currently maintaining a sales pace of about 400,000 units annually. However, this figure represents only a fraction of the vast U.S. used vehicle market, which totals around 36 million sales each year.
Garcia recently shared insights on the used vehicle market while discussing the future of Carvana. When asked if market research influenced the company’s formation, he explained that multiple studies indicate customers desire a simpler purchasing process. He noted that the aim was not to create merely an e-commerce platform but rather to craft an experience that empowers customers to feel confident in their buying decision.
Addressing concerns about pricing, Garcia stated that on average, customers save roughly $1,000 when buying from Carvana compared to the largest competitors. This financial edge stems from their unique business model, which involves buying cars directly from customers and employing a self-service platform that reduces costs significantly.
Many potential buyers wonder about the reliability of purchasing a vehicle sight unseen. Garcia reassures customers by pointing to the trust established by the 2 million previous buyers. Carvana offers a seven-day return policy, allowing customers to return the vehicle with no questions asked if it does not meet their expectations. He believes this option is often more beneficial than a conventional test drive, which typically lasts only a few minutes and involves only one vehicle.
Regarding shipping fees for returned vehicles, Garcia mentioned that most cars listed on their site have no additional shipping costs, meaning that the company will manage the pickup or swap at no extra charge. However, if a car is delivered from a distant location, the shipping cost is not refundable.
When discussing the recent decline in used car prices, Garcia acknowledged that after substantial increases during the pandemic, prices have been generally decreasing over the past two years. He also pointed out seasonal patterns that could cause temporary price upticks, such as during tax season or back-to-school periods. He expressed hope that prices would continue to fall, along with overall interest rates, which would help lower customer payments.
In terms of returning to pre-pandemic price levels, Garcia noted that while nominal prices remain elevated, they now are somewhat comparable in inflation-adjusted terms. The rapid price increases of 2021 and 2022, coupled with rising interest rates, have greatly impacted affordability. Also complicating matters, broader inflation in the economy has resulted in costs of goods and services rising concurrently. As a result, while car prices have been depreciating, they are still iteratively higher than they were before the pandemic.
Lastly, Garcia touched on the trend among automakers to phase out lower-cost vehicles, particularly traditional sedans, affecting the availability of affordable used cars. He reassured potential buyers that Carvana simplifies the search process by enabling users to get instant financing approvals and to filter searches based on monthly or down payment options. Carvana’s inventory caters to a wide spectrum of budgets, with the lowest priced vehicles starting just above $5,000.