How Carvana secretly growth hacked their way to the top... the untold story.
For those who don't know me:
I recently joined Twitter as a pseudonymous account (CarDealershipGuy @GuyDealership) to share untold secrets about the industry.
I have been in the car business for over 15 years.
I've met many of Carvana's current investors, advisors, and executives.
Ok, let's begin. Let's start with some context:
Ernie Garcia Jr. is the Co-Founder and CEO of Carvana.
In 2012, Ernie was working as the Treasurer at his dad's dealer group, DriveTime.
As Treasurer, Ernie was tasked with finding ways to trim costs and maximize profits.
One day, Ernie had an idea.
What if DriveTime began selling cars 100% online?
The idea was a simple one: If DriveTime were to sell cars online,
It could grow its sales without needing to open additional retail stores.
Clever, right?
This is what eventually became known as Carvana.
But here is where things get interesting... Most people don't know that Carvana didn't have any traction for the first 1 to 2 years of operations.
The company struggled big time.
Consumers were wary of buying their cars online.
No one even knew who Carvana was. The company was so desperate to gain traction,
It resorted to selling cars for a loss (negative gross margin) just to generate sales.
Ernie and the team knew they had to make a bold move in order to survive.
And here is what they did: TrueCar, Cargurus, AutoTrader, etc.
Ever heard of these names? These are all 3rd-party car listing sites.
Their value proposition for the consumer is aggregating all of the car inventory available in a local market. t's critical to understand how these 3rd-party car listing websites work:
- Car dealers pay to have their inventory displayed.
- Customers go onto the 3rd party listing sites to browse through the widest selection of cars.
And drum-roll... 3. Customers are presented with cars that are located within
50-75 miles of the customer's location
Key point: Within FIFTY TO SEVENTY-FIVE MILES.
Here is where things get juicy...
On their last leg in a desperate search for growth,
Carvana began propping up "fake" addresses and locations in every market they could deliver to.
No local dealer's license. No local retail store.
Just a "virtual address".
Guess what happened next? Let's use a simple, made-up example:
Imagine that a typical dealer has 10 cars on the lot while Carvana has 100 cars in its total online inventory.
As Carvana grows, that 100 becomes 200, then 300, and on and on...
But the dealer's lot stays at 10 cars. A consumer then goes onto a 3rd-party listing site to browse through local inventory.
They see all of the inventory that is available within 50-75 miles.
But suddenly...
Overnight...
Carvana's 1000s of cars suddenly take precedent to the local car dealers' inventory.
Well, guess what happens next?
Carvana's barrage of pseudo-local available inventory captures every ounce of local demand.
Completely virtually.
Without a local dealer's license or a retail presence.
Leaving zero ability for the local dealer to complete. And remember:
Carvana was not afraid of losing money on cars if it meant more growth.
So overnight, they had:
- Premium website positioning on listing sites
- Largest assortment of cars in every local market
- Cars priced at thin or no margin
But there's even more! People had NO IDEA this was happening.
Not even Executives at the 3rd-party listing companies.
Their own customers - the paying car dealers - were having their businesses crushed in front of their faces.
And by the time they found out...
Carvana had already scaled.