The past few years have seen a number of start-ups tackling an issue that has been a thorn in the side of consumers, buying a used car. Companies such as Beepi, Carvana, Shift, and Vroom have their own take on selling used vehicles, but the goal is the same - make it less of a hassle to buy a car by selling directly to a consumer through the internet at a lower price. But one of these companies has folded most of their operations.
Beepi, one of the first companies to launch back in 2014 folded most of its operations last week and announced yesterday that it would be merging Fair.com, a soon to launch online vehicle retail platform. As a result, 180 people lost their jobs while the remaining 80 employees and Beepi CEO Ale Resnik will move over to Fair.com.
"It's disappointing. We were collectively working to make a massive industry better. I was in support of what they were trying to do -- to bring more visibility to us all," said Gaurav Mishra, chief marketing officer for Vroom Inc. to Automotive News.
Beepi's business model worked like this; a consumer would contact Beepi about selling their vehicle. The company would send out a team member to inspect the vehicle. If it meets their criteria, pictures of the vehicle would be taken and would be posted online. If someone decides to buy the vehicle, Beepi will deliver the vehicle with a bow. If the vehicle didn't sell within 30 days, Beepi would offer to buy them.
Seems like a good business plan except for one thing, a buyer couldn't test drive the vehicle. Alan Haig, president of buy-sell advisory firm Haig Partners said one of the big issues for these companies is that a customer cannot kick the tires. A study done by Auto Trader back in 2015 backs this up with 90 percent of shoppers would not buy a vehicle without doing a test drive.
"Eighty-eight percent of consumers say they will not buy a car without test driving it first. (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," said Shift CEO George Arison in an email to employees and obtained by USA Today.
This email also revealed that Beepi reached out to Shift about possibly buying them.
Beepi also lost one of their major backers earlier this year. TechCrunch believes that SAIC which was revealed to be an investor last year decided to pull out. It is unknown as to why SAIC decided to leave.
"There are plenty of companies out there claiming to be on the cusp of 'obsoleting' the traditional car-buying process, but it’s easier said than done, and nobody has accomplished it despite a lot of time and money spent trying," said Karl Brauer, an analyst with Kelly Blue Book.
Source: Automotive News (Subscription Required), TechCrunch, USA Today
A record number of consumers are finding themselves 'underwater' when it comes time to trade-in their vehicle - the vehicle is worth less than what they owe on their loan.
The Detroit Free Press cites a study done by Edmunds revealing that in the second quarter of this year, 32 percent or nearly one-third of vehicles being traded in fall into the 'underwater' category. This isn't good news for consumers since the difference is tacked on to the new vehicle they had their eye on.
To put this in perspective, the previous high was 29.2% in 2006, around the time where the housing market was reaching its cresting point.
“There’s been a lot of water building behind this dam for some time because of higher transaction prices, lower down payments and long-term loans," said Greg McBride, chief analyst with Bankrate.com.
"It’s problematic for the consumer because there’s no foolproof way to eliminate his financial exposure. If the car gets stolen, is totaled or you get new car envy while you’re upside down then it’s a big problem."
In October, the average transaction price of a new car was $34,663 according to Kelly Blue Book.
The average length of a new car loan hovers around 68 months according to Experian Automotive. This rises to 72 months if it's a subprime buyer - someone whose credit score is below the low 600s.
Not helping matters is the amount of vehicles being returned from leases, flooding the used car marketplace. This increase is causing dealers not willing to spend a lot of money at auction.
Source: Detroit Free Press