E-commerce is becoming more and more integrated into people’s everyday lives, not only in terms of sectors you’d expect, such as retail, but others which, up until recently, would have relied on face-to-face interactions.
The automotive industry is one such sector. Today, companies like Carvana allow consumers to purchase cars through an online system, alleviating the need for showrooms and salespeople.
This trend toward e-commerce has allowed businesses to widen their profit margins while simultaneously making it easier than ever for customers to purchase goods from the comfort of their own homes.
Carvana: An Overview
Carvana is a leading e-commerce company operating in the automotive industry. Headquartered in Tempe, Arizona, it was founded in 2012 with a clear mission in mind: to allow consumers to purchase cars through an easy-to-use technology platform.
The company first went public in 2017 but didn’t declare its first profit until 2021. Nevertheless, the Houston Chronicle has dubbed Carvana “the Amazon of Auto,” which is high praise indeed.
Carvana exclusively serves customers within the US, offering test drives, vehicle financing, and car reviews in addition to selling used cars. To make online car sales feasible, the company has had to develop a system that allows customers to view vehicles using 360-degree imaging technology.
At the end of 2020, Carvana managed to generate a revenue of $1.826 billion. In addition, it announced in the early months of 2021 a net profit of $45 million.
The pandemic likely influenced the sudden surge in sales which Carvana experienced in the second quarter of 2020 (they sold 107,815 units) thanks to the burgeoning used-car market, which began to overshadow new car sales globally at around this time.
In 2021, the company pushed for growth throughout the US, expanding its reach in States like Missouri, Nevada, and Idaho.
Each car bought through Carvana comes with a 100 day/4,189 mile warranty, with a 7-day window for returns if the customer isn’t satisfied.
On the company’s website, it states, “We put people first and selling cars second. This is why giving back to local communities is an important part of our company’s mission.” If you would like to find out more about the values of similar businesses, we have compiled a list of the most powerful and enduring mission statements.
Alternatively, take a look at our competitor analysis for other e-commerce companies like Amazon.
Carvana Business Strategy
Carvana’s business strategy relies on selling used cars for more money than they were acquired, thus generating a profit. As such, it operates a markup revenue model.
By moving away from the traditional bricks-and-mortar automotive sales revenue model, Carvana saves on overhead infrastructural costs, and it is able to pass these savings on to customers ($1,000 on average). Rather than spending money on showrooms or salespeople, the main costs involved in this e-commerce model come from web development, marketing, and customer support.
The company has recently managed to leverage its online platform and economies of scale to generate its first profit.
In its investor documents, Carvana attributes its success thus far and potential for future growth to five key factors:
- A massively fragmented market that is ready for disruption
- A superior customer experience when buying online
- A proven go-to-market strategy
- Vertical integration & fulfillment
- A robust financial model
By carrying out inspections of vehicles, reconditioning jobs, and logistics in-house, Carvana ensures a consistently seamless experience for consumers.
The company offers a vibrant, inclusive corporate culture that fosters the ongoing learning and development of employees. This positive work environment has a significant impact on overall employee satisfaction.
Carvana SWOT Analysis
A SWOT analysis assesses the strengths, weaknesses, opportunities, and threats to a business. It is cost-effective and beneficial for generating business insights.
Strengths
Low costs
Carvana has reduced infrastructural costs by operating e-commerce rather than bricks-and-mortar automotive sales business.
In-house operations
All car inspections, reconditioning, and logistics are carried out directly by Carvana, ensuring a seamless user experience over which the company exercises total control.
Robust financial model
The company can pass on savings to the customer.
Strong distribution network
The network operates throughout the US, so customers can either have their cars delivered or collected.
Industry disruptor
The automotive industry is large and has relied on bricks-and-mortar sales methods in the past. However, Carvana has disrupted the market, making it easier than ever for consumers to choose and purchase cars.
Weaknesses
Competition
Thanks to the pandemic, e-commerce is more popular than ever. Several other automotive sales businesses have seen the value of moving online. To maintain a competitive advantage, Carvana will have to innovate continuously.
Only operates in the US market
The automotive industry is an international powerhouse, yet Carvana operates solely in the US.
Restricted buying experience
Because Carvana is online-only, customers don’t have the opportunity to test-drive cars which would previously have been seen as a vital part of the buying process. This may put many consumers off.
Opportunities
Expand into global markets
There are plenty of other countries where online car sales businesses could thrive. If Carvana enters these markets first, it will have an advantage.
Going green
International governments are increasingly focusing on the need to cut carbon emissions – Carvana can capitalize on this by selling and promoting electric/hybrid vehicles.
Used car sales are booming
In the post-pandemic world, used car sales are rapidly increasing compared to new car sales, allowing Carvana to go from strength to strength and build on its existing profit.
Threats
Competition
Other companies worldwide have emerged in response to the demand for online car sales; Carvana must keep innovating to maintain its dominant market share.
Economic fluctuations
Because Carvana solely operates in the US, it is at the mercy of the US market – if the currency plummets or the economy faces challenges, then this will have a knock-on effect.
Soaring gas prices
Gas prices are on the rise thanks to the international push to “go green,” and not only does this pose a threat to Carvana’s logistics network, but it could also deter consumers from purchasing cars in a bid to minimize their carbon footprint.
Carvana Competitor Analysis
While the automotive industry faced a slump during the Covid-19 pandemic, with global shortages affecting the production of new cars (as well as consumers’ inclination to purchase them), it is likely that the industry will bounce back over the coming years – providing it is able to adapt.
Companies like Carvana will continue to thrive because used car sales are seeing an ongoing upward trend, while other companies which specialize in electric and hybrid cars will also be ahead of the game.
In this respect, the industry is very much about staying on top of current affairs and international trends. Those who are willing to innovate will come out on top.
This is much like the situation faced by the aviation industry. If you are interested to find out more, check out our Southwest Airlines Competitor Analysis.
Below, you can find an analysis of Carvana’s top 5 competitors.
CarGurus
Based in Cambridge, Massachusetts, CarGurus was founded in 2006 and today employs over 800 people in 6 different locations. It offers a slightly different service to Carvana in that it assists users in comparing local car listings, providing a marketplace rather than directly selling vehicles.
In 2020, the company generated $551 million in total revenue, a decrease of 6% from the previous year. This is unsurprising given the ongoing public health restrictions at the time.
In addition to creating a car buying marketplace that connects drivers with sellers, CarGuru has also developed a forum in which potential customers can pose questions, some of which are answered by the company and others by the community.
One of the key ways CarGurus stands apart from its competitors is by positioning itself as a knowledgeable expert within the industry. For example, the “research” section of the company’s website offers in-depth reviews aimed at helping the consumer to make informed buying decisions.
In April 2021, CarGurus brought on ex-Amazon executive Brad Rosenfeld to head up the digital retail segment of its business, a decision that will undoubtedly lead to more efficient monetization of the online marketplace platform.
Before this, the company made a significant jump into wholesale vehicle sales in 2020 when it purchased a 51% stake in CarOffer, a wholesale web-based trade platform. This transformed CarGurus into more of a direct competitor for Carvana.
CarMax
CarMax Inc. operates, through its subsidiaries, as a retailer of used vehicles. It is split into two segments – CarMax Sales Operations and CarMax Auto Finance – both of which amount to around 225 used car stores across the US.
The company was founded in 1993 and is headquartered in Richmond, Vancouver. Its services include:
- Wholesale auctions
- Retail merchandising
- Extended protection plans (also known as EPPs)
- Reconditioning and service
- Customer credit
Analysts are anticipating that CarMax will reach a revenue of $22.9 billion in the fiscal year ending February 2021, a number that will climb to $24.7 billion the following year.
Clearly, the company is expanding at an impressive rate, hiring for 3,700 positions by the end of 2021.
It poses a significant threat to Carvana, particularly due to the recent decision to expand its Customer Experience Center (CEC), which will allow more remote members of staff to support customers in the process of buying and financing cars until they are ready to collect them. This is essentially what Carvana does – and what, at one point, they were unique for doing.
Vroom
Vroom is one of the most similar companies to Carvana. It is a New York-based used car retailer and e-commerce company that allows customers to purchase, sell and finance vehicles online.
The company’s mission is “to help people find their drive.”
It was founded in 2013 – just a year after Carvana – and in 2021 beat all expectations by posting a revenue of $761.8 million. However, this rapid growth has come at a higher cost than expected for the company thanks to higher marketing spend, additional headcount, higher logistic costs, and fees for scaling and software.
Vroom offers a limited warranty of 90 days or 6,000 miles, and it also charges around $600 dollars for car delivery – something which Carvana doesn’t do, providing it’s in the local area.
Since it was founded, the company has raised around $440 million in funding from the likes of AutoNation, Allen & Company, and John Elway.
AutoTrader
Like CarGurus, AutoTrader is an online marketplace for car buyers and sellers, which was founded in 1997. The company is headquartered in Atlanta, Georgia, and has over 800 employees. According to the company’s website, it is a subsidiary of Cox Enterprises and is the most visited third-party car shopping site.
Not only does AutoTrader facilitate the sale of new, used, and certified second-hand cars – rather than limiting itself to one niche as some similar companies have done – it also provides car reviews, comparison tools for financing, and shopping advice.
In 2010, Providence Equity Partners bought a 25% share of the company.
In recent years, AutoTrader has expanded its business offering by branching into smaller niches. For example, it operates AutoTraderClassics.com for fans of classic, antique, and specialty vehicles, and Dealsonwheels.com, which is dedicated to motorcycles, RVs, and trucks. This is one area where AutoTrader is ahead of the competition.
In fact, studies have shown that the company actually facilitates $50 billion in sales annually.
Cars.com
Cars.com has an impressive history stretching all the way back to 1988. Like many of Carvana’s competitors, the company operates as a digital marketplace that connects car shoppers with sellers. It is headquartered in Chicago, Illinois, and employs around 1,500 people.
In addition to making money by showcasing dealer inventory and promoting automotive manufacturers’ OEM brands, Cars.com also offers marketplace products. This monetization technique sets it apart from many similar companies.
These marketplace products consist of subscription advertising and social selling services, digital solutions like website hosting, display advertising, review and reputation management, and in-market audio solutions, to name but a few.
Cars.com serves over 18,000 dealer customers in 50 states. Its primary customers include OEMs, car dealers, and an array of national advertisers.
Indeed, it is the company’s willingness to constantly innovate and evolve which has allowed it not only to survive but to thrive for so long. A recent example of this savvy attitude can be found in the company’s November 2021 acquisition of FinTech platform CreditIQ, which will allow Cars.com to expand into vehicle financing.
In February 2021, the company announced total revenue of $547.5 million in 2020.
How Carvana Stands Out
Carvana is arguably the only automotive sales company that genuinely understands and accommodates the modern consumers’ desire for total simplicity. People want to buy their next car to be as easy as ordering something on Amazon Prime, and this is what Carvana delivers.
Although remaining solely in the US market could be seen as a missed opportunity from a business perspective, this is one thing that allows the company to provide such a stellar service; it knows the American automotive industry inside and out.
There are no worries about logistic issues because Carvana refuses to outsource any kind of work, from transportation to vehicle checks. Everything is done directly through Carvana, ensuring unbeatable quality no matter what.
Frequently Asked Questions
Question: Which is the largest online car sales company in the US?
Answer: Carvana is the largest e-commerce car sales company in the US based on revenue. However, each company included in this competitor analysis has an effective business model which is attractive to consumers in different ways.
In order to stand out in this sector, each company must continue to innovate and identify niches in the market which could help to solidify their competitive advantage.
Question: What is Carvana’s competitive advantage?
Answer: Carvana’s competitive advantage is that it has eliminated the need for any kind of physical presence thanks to hosting the entire car sales process online. There are no overhead costs from salesrooms, and customers appreciate the savings which are passed on to them because of this.
Moreover, the ability to have a car delivered straight to your door is particularly appealing in the digital age.
Question: Who is Carvana’s biggest competitor?
Answer: The company with an offering most similar to Carvana’s is undoubtedly Vroom, but that’s not necessarily to say that Vroom is the biggest competitor.
CarMax has the potential to pose a much more significant threat because, while its original business model relied on the existence of physically used-car stores, it has decided in recent years to expand its Customer Experience Center, which will allow it to sell cars online as well.
Question: Why choose Carvana?
Answer: Carvana’s knowledge of the US automotive industry is unparalleled; no company has quite the same depth of understanding. Busy modern lives require fast, streamlined solutions – even when it comes to something as important as buying a car. And that’s exactly what Carvana offers.
Conclusion
While it’s certain that the automotive industry will face particular challenges over the coming years as world powers attempt to limit their environmental impact from fossil fuels, it’s also certain that the industry will overcome these challenges – through electric vehicles, hybrid vehicles, or maybe a new technology – and the companies which are willing to evolve with the times are the ones which will ultimately prosper.
If you are interested in reading more about similar companies, have a look at the articles below:
- CarMax Competitor Analysis
- Southwest Airlines Competitor Analysis
- Airbnb Competitor Analysis
- Gamestrop Competitors Analysis
- Southwest Airlines Competitors Analysis
- Snowflake Competitors Analysis
Research
https://investors.carvana.com/news-releases/2021/02-25-2021-210520761
https://www.autonews.com/retail/how-carvana-posted-its-first-profit-public-company
https://www.wsj.com/articles/car-sales-2020-covid-19-11609798157
https://investors.carvana.com/~/media/Files/C/Carvana-IR/documents/intro-to-carvana-march-2019.pdf
https://seekingalpha.com/article/4450095-vroom-strong-revenues-but-growing-pains
https://en.wikipedia.org/wiki/Vroom_(company)
http://press.autotrader.com/news-releases?item=66687
https://www.cars.com/articles/cars-reports-fourth-quarter-and-full-year-2020-results-432655/
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