How Shift solves America’s used-car problem
The US used-vehicle market is worth about $1.2 trillion (€1.07 tn). Yet online players like Carvana, Vroom and CarMax control no more than 5% of that market. Plenty of room for hard-working disruptors like Shift to dream big. The San Franciscans are solidifying their grip on the West Coast, with an IPO looming on the horizon.
“This is ridiculous; who has the time to get appointments at five banks?” That may not be the literal quote, but it’s a fair rendition of the frustration with financing a used car that drove a couple of Google alumni to look for ways to improve the process.
A lot of European still consider America as a place where the future is born and matures, before it crosses the ocean to the Old Continent. Ironically, that notion is a bit antiquated. “Europe may in fact be way ahead when it comes to vehicle remarketing, because the US still has a ways to go,” says Hannah Golden, Communications Manager at Shift.
George Arison, one of those Google alumni and currently CEO at Shift, saw the problem with auto remarketing in the US. Basically, if you want to buy a used car in the States, you have three options:
- Go to a dealership that sells used cars. Plus: your vehicle is checked and certified. Minus: the process can take a long time – even longer than buying a new car, given the variability in inventory quality.
- Find a used car on Craigslist (America’s most popular online classified advertisements website). Plus: faster. Minus: no certification, and financing is still separate.
- Buy a used car at auction. Plus: certified and faster than the other solutions. Minus: both the seller and buyer lose out to the middleman. And typically you need a dealer’s license to purchase cars at auction – not an option for most retail consumers.
New and different
The initial plan was to develop a third-party certification system for the used cars sold on Craigslist, but it soon turned out that customers had additional needs: they wanted help selling or reconditioning their car.
Shift started taking shape, as an online platform that coupled the quality assurance of bricks-and-mortar dealerships with the convenience of online retail.
“But we wanted to be more than just an online dealership. We wanted to offer something new and different”, says Danforth Dougherty, one of the Chiefs of Staff at Shift. “We thought, Wouldn’t it be great if we could bring cars to our customers for a test drive? That was very difficult to realise operationally – it was our moonshot, basically – but we did it.”
Those test drives are one element that distinguishes Shift from its competitors; another is the age range of the used vehicles on offer: up to 10 years, where others stick to 1- or 2-year-old cars. It’s an obvious way to generate an interestingly broad inventory. But it also links to Shift’s C2C-oriented philosophy.
“One of our biggest differentiators is that we’re very effective at sourcing from retail. About 80% of our inventory comes from private customers, the rest from wholesale (e.g. ex-lease or rental, Ed.) At most of our competitors, those numbers are flipped. Getting most of your vehicles from wholesale can create problems that are less likely with privately-owned cars, which we like to call ‘pre-loved’, as in: well maintained,” says Mr Dougherty.
Initially using a consignment model for its peer-to-peer trades, Shift now buys the vehicles outright. So-called concierges (pictured) travel out to prospective sellers, inspect the car and offer an initial ‘soft quote’. After the sale, the car is submitted to a more thorough 150-point inspection, retooled if necessary, and put up for sale. Buyers have the option of trading in their current vehicle.
Hubs and locations
Prospective buyers can order cars for test drives, or test multiple cars at one of the five hubs (San Francisco, Los Angeles, San Diego, Sacramento and Portland). Shift also provides advantageous financing options – precluding the need to chase those five banks for the best deal.
Starting out from San Francisco, Shift is now present in eight locations throughout California: San Jose, San Diego, Los Angeles, Riverside, Orange County, Oakland, and since a few weeks Sacramento. The company simultaneously opened in Portland, Oregon, bringing the total to nine locations. Shift buys and sells cars within an hour’s drive of each city.
“That’s a pretty big chunk of the West Coast,” says Mr Dougherty. And a varied one: “The type of car that sells best varies across our markets. In a high-density place like San Francisco, smaller cars and EVs may do really well. Sacramento is a place that likes its vehicles a bit larger. Across the board, we sell a lot of BMWs – which is nice, since BMW’s iVentures is one of our investors.”
Shift recently scored $40 million in equity funding, adding up to $180 million in total. It’s not hard to figure out why investors see huge potential in the company. America’s used-car market, good for about 40 million transactions annually, still largely revolves around traditional mom-and-pop stores – tens of thousands of them. That fragmentation equals opportunity for a disruptor like Shift.
Expansion and profitability
Last year, the company sold 8,500 used cars (+70% over 2017) and generated $135 million in revenue. The aim for this year is 15,000 cars (+75% over 2018) and $240 million. By 2021, when turnover is slated to hit $400 million, the company may decide to go to the stock market.
Nevertheless, expansion will proceed at a prudent pace, says Mr Dougherty: “We won’t just open up in random cities far from our current base. We have to keep in mind the trade-off between expansion and profitability. Our main method of growth will be by adjacency.”
Will Shift become one of those quality brands that are exclusive to the Pacific states? Time will tell. However, the market opportunity being what it is, Shift’s offer of fast, easy and reliable used-vehicle sales may soon make it a household name on more than one coast.