Fri | Dec 14, 2018

Car selling start-ups find there's limited room on the showroom floor

Published:Sunday | January 8, 2017 | 12:00 AM

A few years ago, entrepreneurs suddenly realised that technology could erase a long-standing consumer pain point: buying a used car.

The companies that sprang up to serve the needs of skittish buyers chief among them Beepi, Shift, Caravana, and Vroom promised 240-point inspections and hassle-free buying experiences. Beepi put big bows, literally, on its spiffed-up used fare, while Carvana built auto warehouses shaped like transparent vending machines.

Although these start-ups continue to raise millions in funding, it is now increasingly clear that there isn't room for everyone on the showroom floor.

Beepi, one of the first of the breed that launched in 2014, recently announced that after going through US$149 million in venture capital, it would be absorbed by rival, a stealth mode start-up led by Georg Bauer, formerly of BMW and Tesla; Scott Painter, formerly of TrueCar; and Fedor Artiles, formerly of Mercedes-Benz and Tesla.

For entrepreneurs, the attraction to the space remains straightforward: use a smartphone-enhanced buying experience to cut costs and take market share from auto dealerships in the multibillion-dollar used-car market.

Vroom's pitch: "It's as easy as ordering food." Carvana offers shoppers "our patent-pending 360-degrees photo technology" to virtually inspect your next used ride. And Shift stands out even more in offering to deliver an actual car for a test drive before dotting the digital i's.

In each case, the implication is that consumers can save hundreds and even thousands by skipping dealerships simply because these sites don't have the overhead inherent in showrooms, vast parking lots of cars, and countless sales personnel.

For example, Carvana's site claims to be able to offer the same car at US$1,889 less than a used-car dealership due to avoiding "hidden fees" and a "supporting cast" and offering interest rates that average 0.5 per cent less than a dealership.


Price changes


According to, roughly 40 million used cars are sold each year. But the big change is in the prices those cars are fetching. In the first quarter of 2016, average used-car prices hit an all-time high of US$18,838, driven in part by used truck and SUV sales as well as the fact that a high percentage of those used-cars were less than three years old.

But despite the opportunity for profit in such five-figure sales, actually making one is a lot harder, says Kelly Blue Book analyst Karl Brauer.

"The dealer franchise system has been in place for approximately 100 years, and while aspects of it can, and should, evolve, the basic foundation remains solid."

Brauer notes that many dealers have already made the pivot to online-based transaction capabilities that mimic the sort of easy consumer interface younger shoppers demand.

Beepi's pitch somehow missed the mark as reports indicate that the deal with was neither a planned partnership nor a sought-after merger.

A large percentage of Beepi's staff of around 260 spread around 16 US markets will be let go, leaving the company's two founders and around 80 others to carry on at, according to a statement from the company.


The dropout


A TechCrunch report indicates that the sale ultimately could have been the result of a major backer pulling out, specifically Chinese automaker SAIC, which had been part of Beepi's US$70 million round last December.

Tens of millions have been poured into the space as recently as this summer when Phoenix-based Carvana, the company with the giant car vending machines, added US$160 million to its tank. It has raised US$300 million so far.

San Francisco-based Shift has raised US$74 million so far, including a US$50 million round led by Goldman Sachs. New York-based Vroom has raised US$218 million.

In an email to Shift staff obtained by USA TODAY, CEO George Arison wrote that "we've suspected that this may happen. In fact, Beepi even approached us recently about buying their company".

Part of Beepi's undoing, according to Arison, was that it did not offer consumers a test drive.

"Beepi spent millions of dollars on TV and radio trying to convince consumers that buying without ever seeing a car is the future. We, on the other hand, provide customers with an amazing test drive delivered to your door experience."

Spokespeople for Beepi and would not comment on the details of the transaction, instead providing a press release that described Beepi as "joining forces with a number of automotive industry veterans to integrate dealers into Beepi's digital car-buying platform."

It remains unclear how or when plans to enter the online used-car fray. Representatives of the company declined to comment. They also would not confirm whether Beepi as a site would eventually cease to exist.'s home page offers some hints at a noticeably different model than that offered by existing start-ups.

The site appears to encourage consumers to change cars at any point: "When you're ready, you can trade up, try something new, or just walk away."

More significantly, suggests that it may have learned from Beepi's travails and is bringing dealers into the game from the start:

The winning formula could well be a hybrid model that blends tech ease-of-use prowess with massive dealer footprints.

"Dealers are much better positioned to adopt online shopping and buying practices than nontraditional dealers are positioned to displace them with these same features", says Brauer.