Carvana CEO says price declines and interest rate cuts should make used vehicles more affordable

[November 12, 2024]  By TOM KRISHER

DETROIT (AP) — Since it started selling cars in 2013, Carvana has disrupted the U.S. used vehicle market with no-haggle pricing and an online buying process that cuts out the often-dreaded salesman.

The Tempe, Arizona, company took advantage of many buyers’ fear of negotiating with a dealer, letting them purchase vehicles via computer and have them delivered to their homes.

CEO and co-founder Ernie Garcia says the company has lower costs than conventional dealerships because it doesn’t have expensive real estate across the nation. It does have 17 centers nationwide where used vehicles are reconditioned before sale.

So far the company has sold about 2 million vehicles, with sales now running at a rate of 400,000 per year. That’s still only a small part of the U.S. used vehicle market of about 36 million sales annually.

Garcia spoke recently with The Associated Press about the used vehicle market and the future of the business.

Q: When you started Carvana, did you have research showing that people didn’t like negotiating at dealerships?

A: There’s plenty of research out there that suggests that customers are looking for something that is much simpler. That was the entire premise behind building Carvana. We didn’t set out to build an e-commerce platform for selling cars. We set out to build a simpler customer experience where customers could leave confident.

Q: Do I pay a premium for this experience over conventional dealerships?

A: Versus our largest competitors, on average, customers save about $1,000, give or take, on price. That’s the flow-through of building a completely different business model. We’re buying those cars directly from customers. We have our own finance company, and that means there’s not another middleman. Customers go through a self-service platform, which means that we save a lot of money and time that would otherwise go into someone to walk them through that process.

Q: Why should I buy a car from you without seeing it? Why should I trust you?

A: What we would ask customers to do is trust the 2 million customers that came before them and bought cars from Carvana. And buy with the confidence of knowing that if the car’s not right for you, you can return it, no questions asked, for seven days. And that in many ways that’s much, much better than a test drive. Most consumers only test drive a single car. Those test drives generally last a couple of minutes.

Q: Do I have to pay to ship a car back?

A: You don’t have to pay to ship it back. Many cars on the website have no shipping fees. In that case we’ll just come and pick it up. Or we’ll drop off a new one if you want to swap the car for another one. If you did buy a car from far away, the shipping fee is not refundable.

(AP Illustration/Jenni Sohn)

Q: Used car prices have been dropping for a few months. But there were huge increases during the pandemic. What’s going to happen?

A: Over the last two years, on average, car prices have been coming down. I think that that trend is generally continuing. There are seasonal times around tax season in February and March, or around return to school in August, where prices can go up a bit. But generally around this time of year, they’re going down. For several years, cars got extremely expensive, and that made it hard for a lot of people to buy. Pricing has come down in the last two years. We hope that they continue to come down and that the rates continue to come down as well, driving customer payments lower.

Q: We’re not back to pre-pandemic prices yet. Do you ever see us returning to that level?

A: There’s no question car prices went up very significantly in 2021 and 2022 and then interest rates went up to 2023. That drove affordability down significantly and led to payments being significantly higher for most customers. The other news that simultaneously occurred is the price of nearly all goods and services in the economy also went up. And so during 2022 and 2023 and even early 2024, car prices were still higher relative to other goods and services than they were pre-pandemic. More recently, car prices continued to depreciate more quickly while there’s still some inflation across the rest of the economy. So now car prices are similar relative to other goods and services to where they were pre-pandemic. But there’s no question car prices are higher in nominal terms, even though they’re somewhat similar in inflation-adjusted terms.

Q: Many automakers have gotten rid of lower-cost vehicles, mainly cars, meaning there are fewer lower-cost used vehicles. Can somebody still get a decent, affordable vehicle?

A: We try to make discovery of what car works for them as easy as possible. They can go on the website, they can get approved for financing in seconds. They can start searching by monthly payment, down payment. They can see exactly what they can afford and what makes sense for them. We sell cars in a very wide range of prices. The least expensive car that we sold on Carvana so far is just over $5,000.

All contents © copyright 2024 Associated Press. All rights reserved