Senior Director of Special Projects at Carvana, John Hanger
Mar 28, 2019
EP004 - Senior Director of Special Projects at Carvana, John Hanger
http://www.vehicle2.getspiffy.com
Episode 4 is an interview with John Hanger, Senior Director of Special Projects at Carvana; recorded on March 26th, 2019. John and Scot discuss a variety of topics, including:
- John’s career path, including his trek from CEO of Car360 to being acquired by Carvana
- The origins of Carvana and its impressive performance in the used car retail space
- Exploring the Carvana customer experience, from buying online to vending machines and vehicle delivery
- Behind the scenes look at how Carvana continues to evolve for its customers and employees
- Carvana subverting expectations of buying, selling, or trading a car
- Growth of car subscription services and the impact on traditional ownership models
- Where connected cars, EVs, and AVs realistically fit into the near-future of the automotive industry
Be sure to follow John on LinkedIn! Those interested in reading more about the topics we cover should check out The Banks Report, an online source for analysis in the automotive industry created by award-winning journalist Cliff Banks.
If you enjoyed this episode, please write us a review on iTunes!
The four pillars of Vehicle 2.0 are electrification, connectivity, autonomy, and changing ownership models. In the Vehicle 2.0 Podcast, we will look at the future of the auto industry through guest expert interviews, deep dives into specific topics, news coverage, and hot takes with instant analysis on what the latest breaking news means for today and in time to come.
This episode was produced and sound engineered by Jackson Balling, and hosted by Scot Wingo.
Transcript:
Scot:
[00:51] Welcome to the Vehicle 2.0 Podcast. This is our fourth episode and it is being recorded Tuesday, March 26, 2019. So when we started the podcast, we said, let's put on the whiteboard some of the coolest companies in kind of driving innovation around what's going on around cars and the vehicle 2.0 framework, and one of the top companies on that list was Carvana. So we are very excited to have on the show today, John Hanger. He is the senior director of special projects at Carvana.
John:
[01:25] Yeah. Hey Scot, thanks for having me. It's a pleasure to be here today.
Scot:
[01:29] Absolutely. So you and I have known each other for a while, but the listeners haven't, haven't they don't know you. So I'd love to hear your, your career path. How did you get to be the senior director of special projects at Carvana?
John:
[01:43] Cool. Well I'll keep it short because otherwise I start feeling old if I go over too many details of my career path, but in a nutshell, I have a electrical engineering and a physics background of all things, but decided right out of college, I didn't want to do that. So I went into consulting with what's now Accenture and then just through some happenstance really I got involved with what was then a enterprise software group was at Accenture and I found what I really liked to do. So I helped launch a product within Accenture, both here in the US and in Europe. Got a tremendous amount of experience at a young age, then left to do my first startup back in the early nineties. And have done a sixth sense, either a, as a founder or as a early employee slash executive, the most recent of which was an Atlanta based company here called car 360, which did 3D imaging and augmented reality around automotive retail.
John:
[02:47] So making it easy for people to really go beyond snapshots to interactively explore and understand things about a car before considering a purchase car. Three 60 was in turn acquired roughly a year ago in April of 2018 by Carvana. That brings us to here, today, where I worked for Carvana and special projects role, which, which basically just means I'm working on a number of risk skunkworks projects that, if I can use the term startups within Carvana, that we're building some exciting things as an innovator in the space.
Scot:
[03:29] Cool. As a fellow entrepreneur, I'd love to learn more about the car 360 stories. So did, was this technology you came up with or is it out of one of the, I know you're in Atlanta, is that out of like Georgia tech and then, you know, did you guys go to the venture capital route? Tell us a little bit about that journey.
John:
[03:46] Yeah, so car 360 is actually a very fascinating startup story. I was not the founder. The founder's name is Bruno Francoise. Bruno originally founded the company as Egos ventures. His original product was not what the car 360 product ultimately became. It was instead a mobile app that allowed a person to set their iPhone five on a table, press a button and it would, modulate the vibration of the vibrator within the phone in order to spin the phone in a 360 degree circle and take basically a 360 selfie in the room. They were sitting in and, Bruno appeared on shark tank and his original investor, coming out of that shark tank appearance was Mark Cuban. You know, the company did well for a couple of years, basically 99 cents at a time selling the, the app. but ultimately, like most consumer apps, you know, they saw a huge spike in demand and then an equally large drop in demand and found it was really tough to, to, to make a go of it.
John:
[04:53] So, so smartly they, they took the proceeds from that a burst of success and started building something that was a bit more of a, an enterprise play. What became ultimately car 360, my involvement came when, when the company had had just the first taste of success, but was really struggling to, to build, an enterprise business. Bruno's a, a genius inventor and technologists. But, you know, the company had grown beyond his ability to run it. I was brought in basically to, to help the company acquire financing and continued its growth. We were able to raise an a round, after a period of venture Atlanta, in 2017 we raised that round was led by BIP Capital here out of Atlanta and it was only less than a year later when Carvana acquired car 360. So it was a relatively quick acquisition, which has not been my experience in my previous five companies, but it's worked out great. Ron Is really a fascinating company to be a part of. It's incredibly fast growing and even though it's nearly a $2 billion company in revenue, it's still very much a startup in terms of how it operates.
Scot:
[06:10] Very cool. So I definitely want to talk about Carvana but, but I have to ask the question. Is the technology integrated into the Carvana platform at this point?
John:
[06:18] The immigration is very close actually to launching. Obviously our engineers have been heads down just under a year since the acquisition, working to make that happen. Right now, I think that the current status is that the, the car 360 power pieces of the technology are visible only to a really small percentage of visitors to Carvana.com on the experimental basis. And then, the way that Carvana does things, it's still ramped that up to a hundred percent of users, you know, as we get the kinks worked out. So we're imminently ready to announce that that's visible to everybody, but it's a pretty exciting time as you can imagine for the car through the former car 360 team here to see the technology, you know, fully integrated incorporated into the Carvana website.
Scot:
[07:05] Awesome. I'll look forward to seeing how that, that goes. so let's, let's kind of go back up to 30,000 feet with Carvana. You know, I think I mentioned on the podcast and I can't turn on the TV without seeing an ad now. and so I think a lot of people kind of know what you're doing, but I'd love to hear kind of from the horse's mouth, how you guys think about Carvana and what the company's kind of mission is.
John:
[07:27] So Carvana was only founded in 2012, so it's still a very young company. The company was founded really with the idea to, to change the way that people buy vehicles. in the same way perhaps using the Amazon analogy in the same way that Amazon changed the way that people buy books. Carvana set out to change the way that people buy cars. So rather than a physical dealership where a person goes to a look at and test drive vehicles and then ultimately make the purchase and do the financing, Carvana's model is a hundred percent online. So consumers shop online, they take advantage of the various advanced technologies that Carvana is delivered to, to make that possible. When they find the car they want, they placed the order, the cars typically available as early as the next day, just depending on where that car is in the country and how long it takes to get to the shopper. The car is either deliver on a truck to the customer's driveway or to their place of business or in certain cities where we have them. We have what's called vending machines, car vending machines, and the customer can choose to have the car delivered to have any issue.
Scot:
[08:42] Yeah, we have one of those in Raleigh and it's kind of a genius thing because it's on this highly trafficked area and it's very eye catching because most, most times you're not driving around and seeing a giant car vending machine. So, so I think it's a, it's a genius marketing trick and technique. And then, I haven't had a chance to, to get up close to one. Tell us how that works. So my understanding is you put like a giant coin in there. It's all, some of it's kind of showmanship. I understand, but isn't it essentially like a European parking structure of some kind that you guys have converted to do this?
John:
[09:15] Yeah, it's a really cool idea and, you know, on the face of it, it looks a little gimmicky, but, I've been blown away by how, how much our customers actually enjoy it. The way it works in a nutshell is the vending machine, first of all, is not where you go to shop for cars. It's not like a dealership where you go and look around and test drive various cars. It's where you're taking delivery of the car you've already purchased through the website. And so typically what happens is you have an appointment, the customer shows up at the appointed time. There's a team there that's basically responsible for delivering a tremendous experience for them. You know, taking delivery of a car, is something that doesn't happen every day. It's a big event. It's a fun event.
John:
[10:00] It should be a fun event. We go to great lengths to make it fun. So, you know, when, when they show up there, they're given a token that's like, you know, four inches around. They actually go drop it in to the venue machine. You know, there again, they've already bought their cars so we know where their car is. It's somewhere in this stack, you know, different vending machines or are different heights. Some of them are as high as nine stories, some four or five stories. But somewhere in that glass tower is, is this customer's car. there's a robotic platform that goes up, pulls the car from whatever floor it's on, brings it down, scoots it out in front of them, spins it around so they get a chance to, to see it under the bright lights and then drops it into a, into a glass garage area where the customer can then go inspect it for themselves, take it for a drive and ultimately taking home, the whole thing's recorded video and pictures so that the customer has a chance to post things to social media. And most customers will bring family members and so on just to, make it that much more fun and, it just turns out to be a great experience for everybody involved.
Scot:
[11:08] Very cool. So, you know, there's a lot of new car companies out there like TrueCar and car gurus. And I think the thing a lot of people may not understand is you guys aren't just kind of surfacing inventory that dealers have out there. You yourself are the dealer. You're buying these used vehicles and you're selling them direct to consumer, correct?
John:
[11:30] Yeah, that's correct. It's not just, you know, like car gurus and TrueCar and so on are our great partners of ours. They actually, you know, are, are what you would think of as an aggregator. They bring in, inventory from lots of different places, so, so they can, you know, arguably enhance a consumer shopping experience, but on the consumer is ready to actually, you know, really dive in and understand the vehicle that they think they're interested in and ultimately to purchase it, understand the financing around it and so on. They need to either a go through the traditional dealership experience or be a, we now offer them the alternative of doing that fully online through Carvana.com
Scot:
[12:11] Cool. And then just another clarification thing, so that people 100% understand you guys don't sell new cars. So, you know, it's all used cars. and then, so fact check me on that. And then also what is the sweet spot? Are these things like 10 years old or do you kind of go for, is there a certain kind of sweet spot you guys have found in the market?
John:
[12:31] Yeah, so it's correct that Carvana is used cars only. at this time we do not sell new cars in terms of the types of new cars, we focused strictly on high quality used cars. So every car without exception that is listed on Carvana.com will have passed our 150 point Carvana certified inspection list. And it will be, you know, less than, I don't remember all the specifics, honestly, I've thought in my head, but it's less than a certain number of years old. It's less than a certain number of miles. It'll have zero accidents reported. It will have no frame damage. In short, it'll be a super high quality used car. We take trades all the time, obviously when, when we get a trade, it's actually rare that the trades we take in, we'll meet our own criteria to resell them. So we ended up wholesaling out a lot of cars that are taken on trade because they simply don't meet our standards. So, you know, the type of shopper we attract then are people that are looking for a high quality, super dependable, clean used car. And that's our sweet spot.
Scot:
[13:37] Cool. So give listeners an idea of how big is Carvana. So you guys are revolutionizing the used car buying experience. Where are you on that journey?
John:
[13:46] So, we just announced we're a publicly traded company now, so I can, I can talk about the publicly announced results. We just announced the 2018 annual results. We sold just under 100,000 cars in 2018. So that puts us among the top largest used car sellers in the US in terms of revenue. I mentioned earlier, we're just under $2 billion in annual revenue in 2018. But perhaps the most amazing number that I can share is, you know, we, we have grown since 2012 when the company was launched to this size. Obviously by growing at a very rapid rate and a in 2018, we grew well over 100% versus 2017. And there's really no end in sight for, for that level of growth, right? It's a huge market. It's not a zero sum game. So we don't need traditional dealerships to fail in order to be successful. we just need to continue to expand in the new geographies and capture that currently small percentage consumers that want a different experience wanting online shopping experience for buying a vehicle. And we continue to be the leader in that space and hope to continue to capture more and more market share as more and more consumers embrace this online shopping.
Scot:
[15:08] Cool. So that's amazing. You know, I don't know what the record is for getting to $2 billion in sales, but it seems like 2012 to 2018 doing that in six years at a hundred percent growth rate. I'm not sure there's many other companies that have achieved that, so that's awesome.
John:
[15:23] Yeah, I'm not a full historian on that, but, my understanding is there's only a couple companies that have done that. One being Amazon and other being Uber,
Scot:
[15:32] Yeah. Selling cars helps versus books. So you have to sell a lot less cars then books. And then so, you know, it seems like what's causing that growth is you guys have just created a better user experience for buying cars. Right?
John:
[15:46] That's it, yeah.
Scot:
[15:47] So it's kind of seems like what people like is online option for the vending machine. And then, you know, I think another innovation you guys have done that, that we haven't explicitly talked about is the, you know, the traditional model is you would go and you'd have the sales guy and all that whole experience and then you do the test drive and then whatnot. And you guys have gotten rid of the test drive explaining how that works.
John:
[16:11] Yeah, well, we haven't actually. I mean, at the end of the day, we're all consumers and we all wanted to, you know, when we're making a really big purchase, we want to touch it, smell it, and drive it in the case of a car. And I, I don't think that's changed. What has changed is, from a Carvana perspective, we basically just provide a guarantee you that says, you know, you buy a car through Carvana, we're going to deliver it to your door or delivered to a vending machine and let you pick it up there with that great experience. But either way, you're going to have seven days after you take delivery of that car to decide whether you liked it. And if you don't like it for any reason or no reason whatsoever, you can return it with no questions asked and you can either trade it for a different one or you can just get your money back.
John:
[16:58] And, you know, that's a pretty strong statement, but that radically changes how consumers think about car shopping. Instead of having to test drive it and go around the block and then make a, you know, 30 or $50,000 decision about buying the car with no way to reverse course, you can now shop from the convenience of your computer or your mobile phone, make a purchase, and then take delivery and have seven days to just make sure that you pick the one you really want it. And that's everything you thought it would be. You know, that that's a, that's a fundamental shift in the whole purchase experience and really takes a lot of friction out of it and changes the way consumers approach it.
Scot:
[17:35] Yeah, I think that's what I love about the experiences you guys have just made it zero friction, which, which is key for today's consumer. you know, I spend a lot of time in my eCommerce, a job, you know, thinking about the value or the consumer versus the convenience where to consumer. And so it'd be able to buy a car online, have it delivered to me, and I can just drive it for seven days and keep it or return it. I think that's obviously really disrupting things. And have you seen traditional, you know, the other kind of competitors start to wake up to this? It's kind of funny in eCommerce it took, a good analogy would be Zappos, right? So they, they really broke open the shoe category by having free three 65 returns, you know, unlimited returns essentially for shoes because people wanted to try them on and yeah. So, but then it actually took like five or six years for the rest of the industry to wake up and have to offer to that. Have you guys seen other people react to that?
John:
[18:27] Well, we have, and I think we'll continue to see the automotive. Retail is a giant industry, right? And it gets mocked and made fun of a lot, because of some of the sort of stereotypical bad practices of the past. But, but by enlarge, and I've worked in the industry for, for the last 15 years or so. And you know, by and large, it's, it's actually a very innovative industry. It's constantly changing. And so, you know, whenever somebody comes up with a new idea, of course, others are quick to follow, but, you know, what Carvana is doing is a little more challenging for certain companies to follow. If you aren't selling high quality used cars, it's really hard, if not impossible for you to offer a seven day return. It no questions asked guarantee, right?
John:
[19:16] Because that's the financials of that probably aren't going to work too well for you. And there's a lot of other reasons as well that Carvana is uniquely positioned to do this sort of things it's doing. Because we don't have the financial burden of, you know, huge physical dealerships with, with lots of employees and so on, on the side. You know, Carvana doesn't have some things that the traditional dealerships have. And that's why I made the comment earlier that I don't think it's a zero sum game. I think the industry will evolve and change. I think there's absolutely a place for dealerships, the traditional physical dealerships going forward. I truly believe that more and more consumers will be shopping online going forward. I think it's just a matter of, you know, everybody figuring out what their spot is.
John:
[20:02] And on that point I should mention, you know, one of the special projects I'm working on is actually exploring ways that we can partner with traditional dealerships. And, I've done a few presentations and speeches lately. you know, reaching out to dealers. I've got a number of conversations going on with dealers where, you know, we're just exploring. I mean, what are the synergies? What are the ways we can help each other? Yeah. We, you know, we sort of compete on, on one level, but there's absolutely ways that Carvana can work with dealers and vice versa. And I'm currently exploring what some of those may be.
Scot:
[20:32] Yeah. I've seen in the eCommerce world that, you know, when you get to this existential crisis, all the, all the barriers break down and you know, unusual partnerships start to form. So it'll be interesting to see what that turns into.
John:
[20:44] Yeah. And I think, we saw that, to just drive home your point. We see that with Amazon as well, using, using that analogy. You know, Amazon originally was strictly an eCommerce providers selling books and some other things where, you know, they would essentially go to publishers by the books in bulk, put them in the Amazon warehouse and then ship them when a customer came. Right. But today you look at Amazon, it's really something very different. It's more of a marketplace where there's many retailers selling through that Amazon marketplace. Every consumer is buying with the Amazon brand promise. But in terms of on the supplier side, on the retailer side, there's many different people selling through that marketplace. And so, you know, it evolved. And, like you said, very interesting partnerships come out of it and, I think we'll see, I don't know exactly what that's gonna look like, but I think directionally that's what we'll see in automotive retail as well.
Scot:
[21:37] Cool. It seems like, it's a pretty geographical kind of oriented expansion plan. And is that true? So if I'm in, I don't know, Cheyenne, Wyoming, can I still work with Carvana or do you guys have to have a physical presence there?
John:
[21:53] Well, the technical answer to your question is, you know, in any of the 48 contiguous United States, we can facilitate delivery of a car. Now having said that, it's not going to be next day if you're in Cheyenne, Wyoming or my hometown of Missoula, Montana, because we don't have a physical presence area. So that's going to take us a little longer to get a car there. We do offer customers in those areas. The alternative of taking delivery from the nearest any machine they can, we actually reimbursed $200 towards travel expenses for those customers that want to go let's say to Phoenix and take delivery from the Phoenix vending machine or we can deliver it. It's just going to take a little bit longer. But obviously the vast majority of our businesses in markets where we have a presence and where we can offer that as soon as next day delivery promise. I lose track because we had market so frequently. I think we're in well over a hundred markets now. It might be closer to 110 markets and a that continues to grow the business. Automotive, retail has always been geographic. It was a function of where the dealership is or was. In our case, it's less so because we don't have dealerships, but there is still obviously a geographic component. And, and the level of service we can deliver obviously is a, is higher when, when we're in a given market and have the ability to deliver as soon as next day.
Scot:
[23:13] Cool. And then you're a hundred markets are, so what, you know, loosely around a hundred. are you guys primarily just in the US or have you gone into the rest of North America? Are any of them international at all?
John:
[23:24] Yes, strictly US and no, no plans have been announced to go outside the US. The opportunity is so huge here that it's hard to even start thinking about it. Obviously there are other markets in car 360, as an example, had customers in Europe. I'm familiar with many of the international automotive retail markets. There's slight differences to US but at the end of the day, mainly similar and, you know, there could be opportunities there, but right now Carvana is strictly focused on the US and I don't anticipate that changing any time soon just because we're barely scratching the surface here in the US. The hundred plus markets we're in represent something like maybe roughly 60% of the consumers in the US so a long, long way to go.
Scot:
[24:10] Absolutely. So I've seen the kind of the front end location. I imagine there's some kind of a back-end location or maybe those are separate. is there kind of like a supply chain part of what you guys do where, you know, so for example, the product photography you guys do are amazing and obviously car 360's gonna going to be a big part of that. but the things I've seen, it looks like the car is sitting on a giant turntable and like kind of rotating as part of that. And I, you know, I imagine that's not happening at the local dealer level. Is there some other location where that goes on?
John:
[24:43] Yeah. So, I'll, I'll dive into your specific question about the photography in a moment, but, but to answer the first part, you know, Carvana is more than just, any eCommerce company. It's actually a vertically integrated group of companies, one of which, you know, it's not the glamorous part of the company, but it's a critically important to our success. And a big part of our competitive moat, frankly, is the logistics and supply chain business. we operate, and I don't know the exact number, but I'm going to say in the ballpark of 259 car trucks that haul around the cars all over the country. We, they'll, all those drivers work for us. All the trucks are owned by us and a very sophisticated software group that does the optimization of the routes. We really believe in treating our employees right. So for example, with those nine car truck callers, no driver ever spent the night on the road.
John:
[25:37] The software group works really hard to optimize the routes so that drivers can basically meet in the middle of swap keys, take each other's trucks, and always be home at night. which is, which is a big part of a sort of the lifestyle side of Carvana and commitment to employees as well. But you can imagine, you know, we're selling 100,000 cars in 2018. Every one of those cars had to be, had to be mood. Most of them over a long haul from one part of the country to another. So it's a big part of what we do. beyond that, we then have many, many, many hundreds of the single car haulers, which would probably double if you or your listeners live in a market where Carvana operates, you've probably seen our single car haulers. They're small flat beds and those are the, those are the vehicles we use to deliver cars for home delivery or to pick up traits for example.
John:
[26:27] And so, you know, just the sheer investment of capital by all these trucks, single car haulers, nine car haulers, employ all the drivers and so on is, is a big part of Carvana's business in a big enabler for what we're able to do. coming back to the, the photography takes place in what we call our inspection and reconditioning centers or IRC. we have I think five of those now, around the country. And we continue to add more to compare and contrast that the traditional dealership, to the extent that a dealership decided to do any inspection and reconditioning on a used car, they would do so with basically, you know, spare, spare time and spare resources from their service department. But it's not really the focus obviously in the service department that focuses on servicing retail customers cars. As a result, reconditioning in the truthful dealership wasn't, it wasn't a big focus, was inconsistent, had challenges and certainly wasn't the least cost approach to, to accomplish in the reconditioning.
John:
[27:31] What we've done is we think about the IRC is as essentially like a manufacturing plant or a factory and a, we have teams of process engineers that just really focused on how do we make them incredibly efficient and able to deliver an incredibly high level of quality on a consistent basis. And they're really amazing to see. The ones that we have. we've got one in New Jersey, one here in Georgia, one in Texas, one in Arizona and w and, we just recently announced one in Indianapolis and these IRCs are amazing. Each of them employs 500 plus people and you know, they're processing tens of thousands of cars a year, some slightly bigger than others, but all sort of in that order of magnitude. So it's just incredible watching the number of cars that go through there and the incredible job that our associates do and both inspecting and then reconditioning the cars yet.
Scot:
[28:31] It's funny, it's like eCommerce to have a tab, the simple front end experience. It's amazing how much it has to happen on the backend.
John:
[28:36] It's true. And then I almost forgot to talk about the photography, but the very last step that those IRC is the photography. So once a car arrives, it's inspected. They basically determine what needs to be done on any given car, right. To get it up to our standards. And then each car takes a different path through the factory, just dependent upon what, what his needs are. But they all ultimately end up going through a detailed process. And at the end of the detailed process going into the photo domes and we have, we have, made a huge investment in these photo domes that ensure perfect lighting on the car. We know that consumers buying a car online obviously need more than a few snapshots.
John:
[29:18] They want to know interactively explore the car and even before the car 360 acquisition Carvana heads full of the most sophisticated software for, for, for doing this, capture of the photographs and presentation of the photographs with annotation with car 360, where obviously taking it to the next level with 3D. But the bottom line is we invest a tremendous amount of time and effort to, to light and then capture the imagery of the vehicle to annotate it as an example of the type of things we annotate. And you know, just beyond the sort of standard features and capabilities of the car, if there's a, if there's a small rock chip on, you know, the, the front bumper, it wasn't big enough to justify the expense to repair it, it's probably barely noticeable to the eye. But nonetheless, as part of our inspection process, we'll highlight that.
John:
[30:11] We'll take a closeup photo of it. And then when the consumer views the car on Carvana.com we're actually going to bring their attention to it, which, you know, for traditional automotive retail is like counter intuitive. You know, you try to hide things when you're trying to sell somebody a car. You don't try to highlight things. But we take the opposite approach. We want full transparency, we want the consumer to know exactly what is good about the car and conversely exactly what any of the blemishes or nicks and chips are, so that when they take delivery, they will receive what they, what they thought that they had ordered. And that's another big part of our business that I think sets us apart from the traditional industry.
Scot:
[30:53] And we've, so, so far we've talked about how you guys have innovated buying cars. A lot of people I talk to love the selling car experience. Maybe talk a little bit about that.
John:
[31:03] Yeah. So, it's kind of a, a relatively new focus for Carvana. You know, obviously from the beginning we took trades and, and a fair number of people buying a car, we'll, we'll have an old car to trade in. More recently we launched a national campaign. We have a part of the site that's set up where if you have a car you want to sell, we, you know, we'll make a binding offer and we'll do that sight unseen, which is a pretty radical when you think about it, right? Because traditionally you could get a, you can go and get a black book estimate or, or a blue book estimate or any number of other quote unquote estimates out there. But those are just guidelines. They aren't, they aren't binding. And certainly nobody's willing to write you a check for that amount until they seen the car and driven the car and so on.
John:
[31:49] But, but Carvana has a really innovative program where you can go, putting the information about the car, and we'll give a binding offer and, if you accepted it, we'll send a truck out to pick up the car from your driveway. And that has been going extremely well for us. It's strategic. It gives us access to cars so that we don't have to buy at auction or source in any other way. The key to it really is we have a super sophisticated set of technology and, and and a sophisticated database that has what's called build data. For those in the industry, they may be familiar, but for most they probably aren't. But each car has a vehicle identification number or Vin. And from that number there's commonly available data that allows you to do what's called a vin explosion, which he'll tell you, you know, make model what year the car is, that sort of thing.
John:
[32:40] But what it doesn't give you is all the detailed information about what packages and options did that car come with from the factory. Those, those sorts of details are really important before he can put it in, put a value on a car. What we've done is we've, we've built, through a bunch of sophisticated technologies, a database that allows us to know better than better than most, if not better than anybody based on event all the information about that car. Then we have, you know, sort of level of confidence and a lot of sophisticated data technology that allows us to, to put a binding offer on a car and a view it as a, as an overall portfolio. And that part of our business is growing very fast and it couldn't be more convenient, right? If, if you, if you're looking to sell a car, what could be more convenient than getting a binding offer online. and then having somebody come pick it up versus the traditional, you know, listed hope that somebody that isn't a mass killer in response to your ad on craigslist and it gives you a fair offer. And you know, most people that go through that process, thankfully don't have meat, a mass murderer, but they do get frustrated after, you know, four to eight weeks and can't sell their car. And they ended up selling it to a dealer probably for a first, substantially less than they could have sold it to us for.
Scot:
[33:54] Yeah. And some of the other companies that have tried to make the song a car experience better. I always get frustrated because you'll go take your car and then they like take an hour to review it and then then like the dude comes back and says, I'm sorry, you know, your car is great, but we've got five of those on the lot and it's just like you, you couldn't have told me that before I sat here. Now they seem to, you know, they're there. I've never had a great experience on that side of thing. So, so I liked the idea of just like getting an online quote and having you guys come get it. That's amazing.
John:
[34:22] Yeah, that's right. And you know, it's not defending the local dealer that did that to you. But you know, they only, they have to look at what they can sell on that lot, which, you know, hich is a relatively small sample size. Whereas Carvana looks at it as, you know, we know what demand there is for certain vehicles and we have a nationwide footprint. So naturally we have a much more efficient algorithm for determining in what the car is really worth and giving you a fair offer.
Scot:
[34:53] Yeah. Yeah. It's pretty cool to be able to, when data is king, having a wider lenses is really important.
John:
[34:58] Well said.
Scot:
[34:59] So the last part of kind of the existing Carvana before we kind of go into future vehicle stuff, you guys also offer financing. You know, I, I know that that's where a lot of, at least new car dealers, that's where they make their bread and butter said the financing options are kind of hard to navigate. it seems like, yet again, you guys have kind of made it pretty simple. Tell us a little bit about how that came to be and what happens there.
John:
[35:21] So first it'd be clear a while financing is something we offer it as part of a key part of our business, it's not required. So a lot of our customers do bring financing from their local credit union or from, you know, Bank of America or whatever it may be. And that's fine. But the fact is a high percentage, more than half of our customers end up using financing through Carvana. And the reason for that is obviously we're very competitive in terms of the rates and so on, but, but more importantly, I think is we've integrated it into the shopping experience. So it's not, it's, it doesn't have to be a separate thing. A lot of consumers shop for cars based on, you know, how much they can afford in terms of a monthly payment. And we've got tools that allow shoppers of that nature to approach the car shopping from, from that standpoint so that it doesn't become like this long drawn out.
John:
[36:14] I found the car I liked, but now I find out I can't afford it sort of thing. It's more like a streamline where you can, you can solve for both at the same time, solve for what you can afford and what you like simultaneously and reduce the inventory that you're looking at according to those filters all at the same time. So, that technology is, is pretty unique to us. I'm not aware of many others who are able to do that today and, you know, it is an important part of the overall shopping experience above and beyond the delivery in the vending machines and that sort of thing.
Scot:
[36:48] Awesome. Cool. Well that-
John:
[36:50] Sorry Scot I forgot one other thing to add there, you know, one of the interesting things to me is there's trends, as you're well aware and your listeners on this podcast are well aware. You know, when you look at how car ownership is just changing in general, when you look at subscription models and shared car experiences and so on, there's clearly some trends there that, that are happening and that will certainly affect us. We're not playing in that directly. But what we have done, I think, and I've heard several outside folks comment on this is, you know, we, we've sort of blurred the line a little bit. You know, there used to be a really clear delineation between the traditional car buying experience in a subscription model, but if you really radically changed the traditional car buying experience, streamline and bring it online, add the financing tools so that it's an integrated part of the shopping experience. All of a sudden getting a traditional loan as part of that shopping experience looks an awful lot like a subscription model.
John:
[37:52] It's not, but it's a lot less friction than the traditional car buying and loan processing part of it. So, I think that is important and you know, nobody's placing their bets on this, but you know, from my perspective, I would have to venture a guess that, you know, if you can make that experience where the consumer incurs a lot less friction, they're more likely to transact more frequently. And I think that's something that does a really interesting dynamic for the industry, whether it's, whether it's subscription or, or, or just traditional buying experience through financing, but, but it happens more frequently. You know, that's a really interesting thing, right? Like if people instead of owning cars for an average of five years, which I think is sort of the accepted norm today, what if it's four and what does that do to the industry and how does that change how, how consumers think about things. So, I think that's a really interesting trend for us all to watch.
Scot:
[38:46] Yeah. Have you guys seen that where, because you've made it so easy, your Carvana customers are probably I'd guess. And it's fine if you don't want to answer this, but you know, we see this in eCommerce, like once you make something easier than, than people use it a lot more. And it always surprises folks like, you know, 10 years ago, no one thought same day delivery would be a thing. And now because it's offered then it, you know, people realize how convenient is and it's incrementally added. Have you guys seen that where, because you're buying experiences, so easy and then the trade back experiences is so easy, that your Carvana customers are kind of owning cars on a shorter, shorter time frame?
John:
[39:23] Yeah, I think we've seen early signs of that. but you know, we're, we're data people, so we're not ready to say that, you know, we're seeing that definitively or that, you know, we can predict what it means to our business. Again, you know, we sold a handful of cars in 2012 that we sold 100,000 last year. So the historical data that we have as a basis for drawing surfaces is still a relatively limited, but we're definitely seeing encouraging signs and we fundamentally believe that, you know, if we can make the experience that much better, that people are more likely to, to transact more frequently, and we draw that conclusion from some of the same, analogies that you decided, right? It's been a common theme across multiple industries where eCommerce has changed consumer behavior.
Scot:
[40:16] Yeah. And then, you're comment on subscriptions is interesting cause you know, as a consumer, if I could pay, maybe there's a tiered system and you've seen so, so like clutch for example, has worked with a lot of dealers to offer something like this where, you know, for 500 up to maybe a thousand dollars a month, if I could just kind of have subscriptions to a variety of cars, that could be a lot of fun as a consumer, right. Because, you know, maybe you've always wanted to try the convertible, but it's not really practical. And so maybe I could just go get that for a week and then like, you know, now I'm going to the mountains and I need a four runner or whatever. So, so it seems like you guys could be in a position if you chose to do that, because you've made all this stuff so simple and you've got all the inventory and all that. It's easy to say what I just said, but like, you know, the, you're going to need the reconditioning centers, you're going to need the photography, you're going to need the delivery, the singles at the nines, all that stuff. It seems like you guys have actually kind of built all the stuff you would need to do something like that.
John:
[41:13] Yeah. So I personally, just on a personal interest level, I've spent a lot of time thinking about and exploring subscription models and like you, from a consumer experience perspective, I think it's really attractive, right? Like I want a convertible for the weekend, but I need a pickup truck next weekend because I'm doing some yard work or whatever. I think it's very compelling. How have you been in the industry? I also probably have a greater appreciation that most for, for the other side of the equation and, and you know, it's really just a question of fleet utilization. I think that's where there's still a lot of question marks, right? Like if you don't get the fleet utilization really high, then the cost of operating that sort of subscription model is just beyond reason, right? Like you'd have to charge consumers such a premium that it probably isn't viable.
John:
[42:05] And so that's really the key. Right? And there's a lot of really smart people in the industry working on that and trying to figure out, you know, how to, how do you do that utilization? How do you make that work? I think the only examples where it's working today are, you know, fleets for, you know, Uber drivers or similar company-wide fleets. And there's a lot of really smart people in the industry trying to learn from those examples and bring it into just for the general consumer world. I don't think we're there yet. I think it's a really exciting area for us all to keep our eyes on and see what happens. And to your point, to the extent that there is a viable model there, I think Carvana could be well positioned to take advantage of it, but it's not something we're doing today.
Scot:
[42:47] Cool. We'll, let's, let's kick it back up to high level again. So, you know, here on the podcast we talk about this framework, we've come up with a, which is the vehicle to a framework. We've talked a lot about car ownership. So I think we've checked the box there. The other three parts of the framework are connected car, and then electrification or EVs and then autonomy or AVs. Yup. How about connected car and he, and Oh yeah. And for this part of the program, let's kind of, you know, obviously you're at Carvana, but I'd love to, so this is not like a Carvana speculation or anything about what you guys are doing. Just more of your personal, you know, as a guy that's been in the car industry for a long time, we'd love to hear your more personal thoughts on where you think these trends are going.
John:
[43:29] Yeah, sure. Totally. A car guy on a personal level, I have a daily driver and a fun car, but both have, you know, sort of modern connected car type capabilities. And I followed closely shared with you at the beginning of the show, you know, my electrical engineering and physics background probably goes without saying that I just find all three of these things connected car, EV, AV as incredibly fascinating. So, you know, all three are going to happen. First of all, I would just tell you, I personally believe that the question I think is, you know exactly how and exactly how pervasive, right? Like connected car I think, of the three, is just absolutely going to happen because it makes so much sense. The only restraints, I think ours, we, you know, we've got to find the proverbial demarcation zone, when it comes to personally identifying information and data.
John:
[44:26] But, otherwise there's just so many things there that make sense and the technology's so it's, it's just going to happen. EVs, I mean, it's happening, right? Like it's, it's undeniable. I think, the range question is really the last frontier. I myself would probably own a Tesla or something today if, if only the range where greater. but you know, I have four kids in college and then I'm driving anywhere from four to seven hours to go see him on a frequent basis and I can't get there in any of today's EVs. So I think that's, at least from my personal experience, sort of the only thing holding back. But you know, for commuting to work and, and, and for shorter drives, they're awesome. I have so many colleagues and friends who have EVs and are super happy with them.
John:
[45:14] I just personally believe that's, that's a foregone conclusion that a large percentage of the cars that we drive going forward will be EVs. On the AV side, you have to start getting into levels there. Clearly, somewhere of autonomy is going to be common place in every vehicle going forward. The question is how much autonomy, and I'm still not swayed to believe that, maybe in the biggest cities we'll get to some of a five, but I think I just don't see that being as pervasive. I think, I think the, the, the kind of features that, that, you know, I have, on my cars today that are, you know, an intelligent cruise that bring awareness to the cars around me and break some level of autonomy are, are going to become a place that's a little less clear to me whether we'll ever get to where we've got fully autonomous vehicles that are picking this up and driving us around. I, there's a certain part of that that's intriguing to me as, as a, as an engineer, but there's, there's a certain amount of skepticism I think as well, just because I'm a practical guy and I just don't see it as pervasive. I think maybe limited use cases and in certain big cities might be the place to look for that to start.
Scot:
[46:37] Yeah. One tactical kind of curiosity question with the EVs. I've poked around Carvana a lot. And, I'm a Tesla guy and you guys have a really good inventory of Teslas and I've noticed you have a lot of like, you know, the Leafs and the plug in hybrids and stuff. Does that, is that a challenge because you have to have the charging infrastructure internally to be able to charge all those things?
John:
[46:57] No. You know, I mean, I guess the correct answer would be yes, of course it's a challenge, but, but you know, we, we look at inventory, we know demand on inventory, we know there's demand for that inventory. So obviously we want to facilitate, facilitate delivery of that inventory. And that requires some charging infrastructure. But it's, it's not a problem, right? It's when you think about all the other capital investments we've made, those, are, you know, relatively minor piece. And I think it's serving a growing part of, of what we see as the future inventory will be selling.
Scot:
[47:29] Yeah. Here, here's an idea. So since you already have that, you guys could become charging stations and you know, while I'm charging, I could browse the vending machine so you can put that in your special project bucket.
John:
[47:43] Where we're doing the charging, right? It's in those IRCs. You know, like the one here in Georgia for those of your listeners in Georgia that they'll get a kick out of this, but it's in Winder, Georgia, which is, you know, roughly 45 minutes to an hour outside of Atlanta. As you can imagine. I mean, these are giant facility, so you're not going to put him in a metro environment. They're going to be where real estate's a little bit cheaper. So, so it's out in the middle of absolutely nowhere where we're probably, nobody's ever going to be going happened to be going by and needing to charge. But, but those are interesting. it's an interesting point. And, you know, I think that whole, charging center challenges is, is, is really, like I said, the last frontier and part of what's holding back, they even broader adoption of EVs. So maybe we can play a part in it, who knows?
Scot:
[48:27] Yeah. Cool. Well I charge 10% for all my ideas too, so keep that one. Okay.
John:
[48:33] All right. You got a reputation for having a lot of good ideas, so maybe that's not a bad deal.
Scot:
[48:39] Any other thoughts on, on where you see cars just generally going in the next five to 10 years?
John:
[48:44] Nah. We've covered a lot. I would just say, you know, it's very exciting. Automotive retail, like I said, sometimes gets, it gets a black guy because of some of the, some of the experiences people have had in the past. But, it's an incredibly exciting and huge market and, were, from a Carvana perspective, thrilled to be, innovating and bringing about what we think are some really positive changes. We do it in a way that, you know, is great for our employees. It's a great company to work for. And, I think, Carvana has a bright future. I think automotive retail as bright future. And I think, you know, all the sort of trends that you and your listeners are following in terms of changes in car ownership and connected cars and EVs, AVs are just incredibly exciting areas to, keep an eye on and to follow in the coming years because, no doubt they'll just be a lot of, a lot of innovation continuing to come at us.
Scot:
[49:38] Very cool. Well, we really appreciate you being on the show. We're up against time here, so obviously people can go to carvana.com if they want to learn about that. I always love for public companies to go to the investor relations area because that's where you get all the really good juicy stuff. And that's investors.carvana.com. How about you on a personal level? Are you, do you kind of pontificate online about the future of cars? Where can people kind of follow you if that's something you do?
John:
[50:02] Yeah, I'm not a big pontificator except maybe in person, just don't ask my wife. But I do spend a fair bit of time on Linkedin and post a bit there. So anybody interested in following can do that. Also I just point them to the Carvana social media accounts. We do a lot, not just of self promotion but in terms of highlighting industry trends. The last call out I'd have, and Scot you may know Cliff as well, but Cliff Banks has a site called The Banks Report; banksreport.com. And Cliff is one of the smartest guys and most connected guys in the industry who follows all these same trends. So he's another great resource for those interested in the topics that you cover.
Scot:
[50:49] Awesome. Thanks for that. We really appreciate you highlighting that. And thanks for coming on the podcast. We really appreciate you taking the time and this has been super informative. I have learned like a thousand things about Carvana.
John:
[50:59] Thank you Scott. I appreciate the opportunity and keep doing all the great stuff you're doing.