The online world has posed an increasing threat to automobile dealers and their huge investment in fixed space, staff, and operations. Startups have received billions of dollars in funding to disrupt the traditional dealership model. These businesses range from making it easier to market, merchandise, and stay in touch with prospects and customers to moving the entire sales process to the Internet to removing dealers from sales totally by facilitating consumer to consumer (P2P) transactions.
However ecommerce businesses have found the car and truck market more difficult to penetrate than they planned. A finance article called Carvana a cash incinerator. Carvana has raised close to a billion dollars, including its IPO. It will have over another billion dollars in debt after a current plan to offer $250 million in new notes. It spent $414 million on operations in 2018. But spending more hasn’t paid off. While Carvana had $755 million in revenues the past quarter, it lost $82 million in the period and its losses are increasing.
Vroom has had huge problems as well over the past year. It’s raised $300 million but had to layoff an estimated 50 percent of its staff and close locations in Dallas, Texas and Indiana.
Carvana and Vroom are not alone. Beepi had $150 in funding and went out of business. Shift has raised $74 million. It laid off 10% of its staff. Carspring and Hellocar shut down in the United Kingdom.
Ecommerce is and remains a huge threat to dealers. But the collision between the market and this round of startups has clarified the role of ecommerce. It’s inevitable that key parts of the dealer business and operations will go online to better connect with buyers and manage operational costs. The larger ecommerce disruption though is still unresolved. At a minimum it will take longer to arrive than technology advocates and their investors hoped. Automobile dealers will have more time to adapt and use the best of what the Internet has to offer.