Sellers are adjusting to shifting expectations in fragmented used-vehicle space

Today most customers know what vehicle they want to buy before they leave their house. They typically know what price is fair. And they'll head straight to the relevant dealership to buy it.

Or, increasingly, they can just buy it online, perhaps not even from a dealership. The fragmented used-vehicle market is chock full of online startups, non-traditional retailers and old-school dealerships all vying for a piece of the pie, and everyone is focused on meeting car shoppers in their comfort zone.

"It's getting closer and closer to the point where [customers] can hopefully buy a car from us and never step foot in the dealership," said Ohio dealer John Yark, president of Toledo-based Yark Automotive Group.

That's also the promise of online upstarts such as Carvana or Vroom — a quick, hassle-free shopping experience with the vehicle delivered to the customer's door. More and more, the newcomers are influencing how franchised dealers approach the used-vehicle market with traditional retailers more aggressively pursuing digital transactions or adjusting policies — offering return guarantees, for instance.

Yark Automotive has launched a YarkQuickBuy button on some of its stores' web pages and has dedicated parking spots for YarkQuickBuy customers at its Nissan store.

"The idea is to get them out of here in under an hour," said Bill Yark, the group's marketing and e-commerce director, and son of the late Jim Yark, who founded the dealership group as a single-point Oldsmobile store in the early 1980s.

But even with car customers doing more shopping online, some call auto retailers late to the game in an e-commerce era in which everything from books to underwear can be ordered on a cell phone, tablet or computer and sent to doorsteps within a few days.

Big auto retailers have taken note of the heavy shift toward digital, and some have invested accordingly. Lithia Motors said in September it invested $54 million into online used-vehicle startup Shift Technologies, making Lithia the San Francisco-based company's largest investor. AutoNation announced in October it's investing $50 million in Vroom, the online retailer helmed by Paul Hennessy, formerly of Priceline.

The company aims to set itself apart from competitors by being purely online and geographically agnostic. Whereas some retailers — digital and brick-and-mortar alike — may want to first know where the customer visiting their website is located, Vroom couldn't care less.

"To me that's the real differentiator from the places that say, 'First tell us where you are,' " Hennessy said. "Wherever you are in the country, we can deliver to you." It already has sold to customers in all 50 states.

Meanwhile, locally rooted dealership groups see buyers from far away, and some, such as Feldman Automotive Group in Michigan, are responding accordingly.

Finding that consumers no longer just shop a local block of dealerships, Feldman has launched used-vehicle stores with the 1-800-Preowned brand in addition to its franchised locations. Next spring, it will break ground on a standalone 1-800-Preowned store in Livonia, Mich.

"We continue to see interest from all parts of the country," Feldman COO Dave Katarski said. It has prompted casual talk by the group's leaders of putting together its own distribution network, complete with company-owned car haulers, although nothing is in the works; Katarski stressed it's still just an idea.

More immediately, Feldman is building the 1-800-Preowned brand to capitalize on the group's shared inventory of 1,400 used vehicles vs. around 120 at a single store. Customers can have any one of those brought to any Feldman location or have it delivered to them. The company five years ago implemented a three-day return policy to give online buyers added comfort, Katarski said, noting the influence of e-commerce giant Amazon.

"Look at what they have done to the retail landscape," he said. "To stick our head in the sand like an ostrich and say this will never happen to us, those will be famous last words."

Franchised dealers have long taken cues from CarMax, the largest used-vehicle retailer in the U.S. But 25-year-old CarMax also is embracing new ways of selling vehicles.

"Our extensive testing and research has shown us that customers' expectations are changing," CarMax CEO Bill Nash said in a call with analysts in December. "Buying a car is still a complex process, and customers are looking for an experience that gives them more control and independence."

CarMax is pursuing an omnichannel strategy, a phrase that typically describes a seamless buying experience whether consumers are shopping from their computer, mobile device or in the store.

In Atlanta, where CarMax is rolling out the pursuit, customers can complete some or all of the car-buying process from home. They can have a vehicle delivered to their home or workplace and test drive it before signing off on a purchase. There's also an express pickup option that the company says will allow customers to get their vehicle from a CarMax store in as little as 30 minutes.

The Atlanta market's website has been revamped to support all these efforts, and CarMax intends to have the omnichannel experience available to most of its customers by February 2020, Nash said. CarMax tested parts of the concept in North Carolina and previously launched a dedicated customer service center in Raleigh, N.C., to give customers feedback via phone, email or text message. The center now supports the Atlanta market.

This kind of over-the-phone customer service is a key strategy for Carvana, arguably at the forefront of online used-vehicle sales in the U.S. At its shiny, new, 135,000-square-foot headquarters in Tempe, Ariz., dozens of rows of employees sit at open-office work stations, many answering customer service calls or perusing Manheim Marketplace in search of inventory.

"We're already packed to the gills and looking for more space," Ryan Keeton, Carvana's chief brand officer, told Automotive News on a tour in November. Carvana is "focused on creating great customer experiences, with great technology, and consumers are digging it."

It has certainly found car buyers.

The 5-year-old company is posting triple-digit growth in both revenues and unit sales. In last year's third quarter, it sold more vehicles than it did in all of 2015 and 2016 combined. While yet to report a profit since going public in 2017, Carvana has taken advantage of being real-estate light. It operates in more than 80 markets, but the closest thing it has to physical retail are 15 large vehicle vending machines — gimmicky to be sure but also part of Carvana's strategy of making the car-buying experience more fun, perhaps even a bit zany.

Even as newcomers such as Carvana grow, traditional dealers can respond to the changing times.

"Used-car sales is something I can influence a lot greater than new-car sales," said Chris Marhofer, general manager at Ron Marhofer Auto Family in northeast Ohio. Marhofer has been testing home delivery for about three months and is working toward making sure all paperwork is complete before bringing a vehicle to a customer's home.

"If we get out of our 1980s thinking, we can do what Carvana's doing," Marhofer said.

The good news for dealers, and pretty much everyone in the used-vehicle space, is that the market is very splintered. No. 1 CarMax has just a 2 percent market share. And nearly 40 million used vehicles are sold each year in the U.S., according to Cox Automotive.

Vroom has "a baker's dozen" of competitors and "maybe three or four" that do exactly what Vroom does, said Hennessy, who estimates it as a $750 billion-plus market.

"This is massively fragmented and owned by no one," he said. And while companies such as Vroom can "garner share, and quickly," it's not a "winner take all" situation. There's plenty of room for traditional retailers, too.

"I'm not going to pound my chest and say the dealership is dead, long live e-commerce," Hennessy said.

Asked whether the YarkQuickBuy button is a response to the digital upstarts or a natural evolution of Yark's business, Bill Yark said, "I think both." But he also noted that dealers have something web-focused newcomers don't: Longstanding relationships in their markets.

"We're a local business," Yark said. "So I don't plan on going anywhere, and I don't think Carvana is going to take over the world."