This CarLotz location in Greensboro, N.C., sits in a pocket of Wendover Avenue nestled between car dealerships and an auto auction.
Quite literally, it is adjacent to both retail and wholesale vehicle marketplaces.
But metaphorically, the same could be said for the overall business concept of CarLotz itself.
The retail consumer can walk in to buy a vehicle, same as he or she would at a traditional car dealership.
But the cars being sold are vehicles consigned for sale by folks like fleet management companies, dealers or private consumers themselves.
This small but growing chain of used-vehicle consignment stores started with a Richmond, Va., location in 2011.
At that time, co-founder and chief executive Michael Bor says in an interview here last month, the vision was a retail concept, where the consumer could consign a vehicle for sale and/or purchase one, as well.
The thinking was, if a car owner wasn’t satisfied with the trade-in offer from the dealership or didn’t want to mess with selling the vehicle through Craigslist, CarLotz could sell the vehicle, Bor said.
Expansion to commercial side
The concept soon spread, and when CarLotz opened its third location (this time in Chesapeake, Va.), it brought on Brent Garrett to run the store.
Garrett, who had come to CarLotz from the remarketing and fleet management side at Enterprise, saw an opportunity to expand the business into the commercial side, which CarLotz had “dabbled” in previously.
They started small with the commercial business. For instance, selling a vehicle for a business owner and then selling the 15 pickup trucks in the company fleet.
Garrett saw an opportunity the do the same with larger leasing and fleet management companies, so Bor pulled him out of the Chesapeake store to pursue that line of business.
“Literally, I made thousands of phone calls,” Garrett said. “Just calling every plumber, electrician and construction company out there, just trying to see who would be interested in this channel. And we had some success, selling vehicles for a variety of smaller, local-based businesses in Virginia.”
Based on his time with Enterprise, Garrett knew of large fleet management companies that needed to dispose of huge pools of vehicles. So, CarLotz put a list of these companies together and began hitting the phones.
“It took a while, but sometimes all it takes is one to give you a try and sample it and see what the results could be like,” Garrett said. “And we started generating wins for them, and then that helped us have conversations with other FMC partners. And I would say that if you look at the top 15 FMCs in auto remarketing, we’re working with 10 of the 15.”
Garrett said that has since expanded to local credit unions, local dealer groups who want to retail their trade-ins that do not fit their lot’s mix, and other various portfolios.
“When we first started with these guys, it was a change in process,” Bor said of approaching commercial consignors. “It’s a very tough sell. You’re going to a remarketing team where there are 20 guys in an office tower and they’ve been doing it a certain way their whole life.
“But we have found that a lot of these guys are really forward-thinking. It’s not just talk. They are trying to find the best way to do their job; they’re trying to find ways to increase returns on their assets for them and for their clients,” he said.
Again, Bor acknowledges that it was a “tough leap” at first and a risk for these remarketers to change part of their business and take a chance on what was then a small operation.
But not long into working with these folks, he said, CarLotz was able to “generate enough wins” to where they could present case studies with hard data on days to sell, returns after fees, the reconditioning investment made by CarLotz and so forth.
“These case studies provided the meat that really allowed them to start feeling more comfortable that this is a real thing, and maybe the risk isn’t as high as I thought it would be to attempt a new process,” Bor said.
More of these larger consignors became comfortable with the process, “and now they’re actively trying to figure out how to get more volumes through us,” Bor said.
“And then some of them said, ‘we’re not comfortable with it, maybe our cars are different,’ and so with those guys, on several occasions, we just bought a bucket of cars from them and we sold them on our lot, and then we showed them the returns that we made,” he said.
These consignors would send CarLotz vehicles from a limited geographical radius at first, so long as CarLotz could pick the vehicles up, Bor said. As the company started to prove their benefits to these consignors, they agreed to expand that radius to 100 miles, 200 miles and so on.
“Fast forward to today, we’ve got guys who are shipping us cars from New Hampshire to Florida, New Mexico, Texas, the Midwest,” Bor said. “The bulk of our cars still are probably within 300 miles of our stores, but when people see some real opportunity with specific cars, they’re willing to send them from pretty far away to get that retail lift.”
Currently, CarLotz has stores in Richmond; Chesapeake; Midlothian, Va.; Greensboro; and Charlotte, N.C.
This reflects the initial growth plan for CarLotz: expansion stemming outward from the Richmond area into nearby markets.
However, that strategy has changed to include areas of the U.S. where consignors have expressed a need for additional channels; places like Texas and Florida, for instance.
CarLotz aims to have a couple additional stores launching this year.
Its current stores each have a vehicle capacity of about 150 units. Bor said that future stores would likely have vehicle capacities of 300 or more units and amenities like service capabilities – “an enhanced version of what we have today.”
And the company is also looking to expand the vehicle capacities of existing facilities.
‘Not putting anyone out of business’
Next door to this particular CarLotz location is Greensboro Auto Auction. On the surface, it may seem like the two would be competitive.
That’s not necessarily the case.
In fact, Bor said, “We find that working with and being near an auction is helpful to our clients.”
If a commercial consignor has a vehicle for retail sale at CarLotz and it doesn’t move, it needs to be wholesaled. Pretty convenient then to be near (or better yet, next door) to an auto auction.
And it might be the relatively infrequent case where a vehicle arrives at CarLotz and its condition makes it more ideal for wholesale than retail.
Or a buyer might bring in a trade-in that is simply aged out of the range CarLotz is trying to retail, so the company would then wholesale that car.
It’s very much about working with the existing players in wholesale. The model is less about disruption and more about supply chain management.
CarLotz is aiming to “build a system” where this very small slice of used-car market that’s retail-ready at wholesale can go direct to retail, Bor explained.
“If we had unlimited parking spaces to do what we do, we’d still be a tiny portion of the auction business,” Bor said. “If we were 100-percent successful, the auctions would still be very successful. We’re not putting anyone out of business. We’re just creating a better supply chain of vehicle from a previous user to new user than exists today. Just a more efficient way to do things.”
The prices at a CarLotz location are about 10 percent less than retail, but typically higher than the wholesale valuation of a car. It’s a flat-fee model for the seller, no matter the car, whether it’s a Ferrari or a 16-year-old pickup truck. The fees include a $199 upfront listing fee and a $799 success fee, which is pulled from proceeds of the sale. The latter is only charged if the car sells.
“I think what we’ve started to realize is, we’re kind of problem-solving our industry and wrapping it into a dealership. So, the problems that we solve are ‘how do I sell my car for more than the wholesale price?’” Bor said. “For commercial guys, it’s ‘how do I get retail money for my car?’”
“Without setting up retail dealerships around the country and having to incur all that expense,” Garrett adds.
Bor continued: “For the buyer, ‘how do I find a good car and don’t pay full retail?’”
They’ve aimed to solve those concerns and make it “comfortable,” Bor said, with things like a 30-day warranty and a low-pressure environment.
And they’ve learned from folks like CarMax, who have had significant success around the comfortable customer experience, and the transactional side of the business from auctions.
On the commercial side, CarLotz wants to “mirror” the processes that consignors typically go through when selling a vehicle wholesale, Garrett said.
The car is transported to the facility, gets stocked in and receives a condition report — and that process is the same at CarLotz. There is a consignment manager at each location, who handles the CR, which is then emailed to the commercial team to review, Garrett said.
Then the vehicle is inspected and CarLotz determines what, if any, reconditioning work is needed on the vehicle.
Vehicles are up for retail sale “within hours” of arrival at CarLotz, Garrett said.
“We want to mimic the auction in terms of how we communicate with these guys … they’ve been selling through auctions for years and years and years; there’s a way they like to receive information,” Bor said.
“We’re a retailer, but we want to be able to let some of these guys who are accustomed to selling it at auction feel like they’re getting the service,” he said.
Asked if he sees the concept of retail remarketing expanding, Bor said: “The way we kind of envision it is that, we think eventually folks will basically triage their cars.
“There are a lot of cars — most cars — that should go to auction. They need a bunch of work; that’s what the dealer’s job is … to take a car and make it retail-ready,” he said. “But there are some that are retail-ready. So, our view is, why send a retail-ready car through a wholesale channel? It doesn’t make any sense; it’s ready to go.
“We think if there were more retail outlets that accepted consignment, there would be a lot more people consigning to retail.”
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