Shift sees more room to disrupt used cars

— the heels of the relative market success of its peers that sell used cars online, Shift announced it would go public this quarter. But the link with Vroom and Carvana is correlative, not causal, said company co-CEO Toby Russell. And there is plenty of room for more disruption.

"We had been planning for years to build a public company," he said. "I think Vroom's IPO is a strong indication of the incredible interest that public market investors have in online commerce for used auto."

Indeed, past news coverage shows Shift had anticipated becoming a public company at least as far back as 2018.

Vroom went public in June at $22 a share. Its stock closed Friday, July 17, at $46.70. Carvana's initial public offering in April 2017 was priced at $15 per share; its stock closed Friday at $141.23.

Shift announced last month it would be going public through a reverse merger with Insurance Acquisition, known as a special purpose acquisition company, which will get a minority stake after the transaction is complete. At press time, Shift had not shared a date for the offering.

Like Carvana and Vroom, Shift is a loss-making company that expects large top-line growth, according to its financial statement. Its net loss was $11.2 million for the first quarter. That followed losses of $55.7 million in 2019 and $38.8 million in 2018.

The company sold 11,091 vehicles last year and estimates sales of 12,505 this year, followed by 24,286 in 2021 and 45,000 to 55,000 in 2022. In dollar terms, Shift had $175 million in net sales last year and estimates sales of $194 million in 2020.

Losses aside, the apparent investor appetite for such e-commerce companies shows how ripe the used-vehicle market is for disruption, companies such as Carvana, Vroom and now Shift have asserted.

"The e-commerce part of used auto represents less than 1 percent of the market," Russell said. "It's kind of hard to find verticals where that's true in consumer retail today. Basically all of consumer retail has been deeply affected by the Internet."

And for vehicle sales, this phenomenon has only been fueled further by the COVID-19 pandemic, Russell said.

Although it is yet another digital player looking to disrupt what is estimated to be an $841 billion used-vehicle market, Russell said the company is "meaningfully differentiated" from Vroom and Carvana.

One aspect is its broad stock of lower-priced inventory. Of its vehicle listings, 75 percent are more than 4 years old, compared with 52 percent for Carvana, 50 percent for CarMax and 32 percent for Vroom, according to documents Shift filed with the U.S. Securities and Exchange Commission. Shift said 16 percent of its car listings are in the under-$10,000 range, compared with 1 percent for Carvana, 2 percent for CarMax and 0 percent for Vroom.

With a focus on vehicles that are older, Shift emphasizes test drives. For customers within range of the San Francisco company's West Coast markets, a vehicle can show up for a test drive at the push of a button. Or they can go to one of the company's hubs to test drive multiple cars and trucks. Shift offers at-home test drives within about one hour of its hubs in Los Angeles; San Diego; San Francisco; Sacramento, Calif.; and Portland, Ore.

Shift also has a mobile point of sale, so buyers can apply for a loan, get a vehicle service contract, sign all necessary documents via e-contract and complete an electronic funds transfer on a pad device from wherever they are.

"So basically you can buy a car anywhere with Shift," Russell said. "You can buy it online, buy it at your home." He called it "omnichannel with a test drive."

While concentrated mainly along the West Coast, the company plans to expand operations by one to two new markets per year, although where and the method by which it will do so is a "trade secret," Russell said.

Meanwhile, it's not clear how Shift going public could affect Lithia Motors Inc.'s stake in the company. The Medford, Ore., dealership group committed $54 million in 2018 in a strategic partnership that allowed Shift to leverage Lithia's physical infrastructure. At the time, Lithia was said to be Shift's largest investor. Other investors cited in SEC documents include BMW i Ventures and Goldman Sachs.

In March 2019, Shift and Lithia announced the beginning of a national data-sharing partnership that would combine Lithia's transactional data with Shift's data analysis and machine-learning capabilities.

Both companies declined to comment specifically on Lithia's stake.

"We're excited to be part of Shift's ongoing success," Lithia CEO Bryan DeBoer said in an emailed statement. "Their customer empowered digital platform is perfectly positioned to grow and compete in the online used vehicle space."

Jackie Charniga contributed to this report.