America’s $350 billion used-car market would appear to be more COVID-proof than the average factory or dealership, but it’s not without its own unique challenges.
Most of the supply chain — some 40 million vehicles a year — snakes through a few massive parking lots where dealers buy and sell inventory in a continuous stream of auctions. It’s a vehicular swap-meet where thousands of middle-men kick tires, cut deals and generally risk a case of COVID. ACV Auctions, however, has been working to move the marketplace online, essentially creating a sort of eBay for slightly tired Teslas, off-lease Ford 150s, and all the other pre-owned machines looking for a home.
Online bidders can get a report on a car’s paint depth, listen to its engine, and view a high-definition scan of a vehicle’s undercarriage, among other things. It was a good strategy before the pandemic, enough to secure $150 million in a November funding round. In the past few weeks, the model is looking even better, though ACV has cornered less than 5% of the market.
In addition to digital auctions, the six-year-old startup offers financing and transportation. It also sells its inspection services to dealers under the trademark True360. Retail car shoppers can pull the 3rd-party inspection report much like they do a CARFAX audit.
Bloomberg interviewed ACV CEO George Chamoun to talk about how his charge is clearing the bottleneck in an analog industry and catalyzing socially distanced car shopping:
What was the opportunity?
Used cars require the same inspection-related process you have with diamonds. Traditionally, with used car auctions everyone goes to these giant parking lots and essentially inspects their own diamonds. We have over 700 full-time inspectors in all the major U.S. towns. We go to where the car is, give it a thorough inspection, and hold a 20-minute auction right from where the car is. We’re inspecting 75,000 cars a month between our three products.
You’d had a successful career in tech. Why did you move to ACV?
This is an industry with these massive trust issues, so the approach just made sense to me. First, it made sense to invest a little money. When they pitched me to lead the company, I didn’t know anything about the auto space, but I knew that you can’t pitch assets — especially assets that cost thousands of dollars — without transparency and trust. This is the type of business that could grow to be a massive platform, to be Amazon and Google-like. You’re talking about a huge part of the national economy.
What does your competition look like?
A number of the incumbent auction companies are trying something similar. You saw when Amazon disrupted a space, traditional retailers put up that commerce site. It’s not like they said, ‘Game’s over.’ We’re built for exactly what we do. We have a whole process of a digital-first strategy.
How has demand changed during the pandemic?
For about a month, it hurt us because a lot of dealers were closed. March is typically our best month of the year and our first week was great. In May, we broke all our records. June was faster than that. You have fewer folks wanting to go buy and sell cars the old way. Our approach makes more and more sense to a greater variety of constituents.
So COVID-19 has been good for business?
I hate saying that out loud, because there’s so much awfulness out there, but yes. We are a digital first business that helps dealers buy cars online and helps consumers buy cars from dealers. Both products are taking off right now. If you want to trade in your car, we might show up in your driveway, inspect it and auction it and you’d never have to go to the dealership.
With factories shuttered, has inventory been a problem for dealers?
The inventory lag is probably to the benefit of used cars. Let’s say that’s affecting the industry to the tune of 3% or 5%. Probably peer-to-peer struggled a little bit in this time as well. Consumers still need cars. They’re not going to want to do as much public transport.
What does the current situation — with both the disease and its economy impact — mean for the new car-used car mix?
It’s a fantastic time to buy a new car, if you can afford it. It’s free money. But the used car sector is seeing a huge, huge benefit right now, when you look at the pricing, the loans, the ability to get qualified. In a world where there’s less employment and less certainty, the used car market is still viable. Consumers are going to need cars. We need to go to work. We need to go to school. Anybody who has a daughter in soccer or a son in golf knows, we live out of our cars. It’s a big part of the American way. It’s a big part of our culture.
Do you think ride-sharing will suffer long-term?
I think as humans we become resilient and less fearful, so I don’t think it’s a long-term issue. I’m not going to be afraid to go into an Uber or Lyft. But is that going to be my exclusive way to transport? No.
What’s been keeping you up at night?
The radical shift. I feel bad for my dealer customers. Though, I think they’re all better prepared now. If there was a resurgence of cases, the dealers are ready to do online sales. Many are healthier businesses now; they had to make a lot of changes.
As we eventually recover from the pandemic, will the momentum continue?
The new normal is the internet now, for high-ticket products. Cars are just catching up. The world has definitely changed. It’s not going back and I think dealers are more comfortable with that then ever. The mindshare on digital has changed tremendously. What we thought would have happened two, five, 10 years from now, all happened overnight. I think that will be the one good thing dealers get out of this. And it’s going to be great for consumers.
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