The problem with used cars, at least from the app-centric perspective of Silicon Valley's eager disruptors, is that prospective buyers can't simply order up a test drive as easily as a pizza. You can imagine the elevator pitch for a startup promising to remedy this injustice:
It's like Uber for cars. Well … used cars.
Shift Technologies has for the past year been trying to steal a slice of secondhand car sales from Craigslist, CarMax and traditional dealerships. In the magical cities of San Francisco and Los Angeles, where the marginally more convenient future sometimes arrives first, would-be buyers can now skip the used-car lots and awkward e-mails to strangers with a 2009 Honda Civic to spare. Flush with $50 million of funding led by the venture team at Goldman Sachs, the San Francisco-based Shift plans to take its car-shopping service to 18 more U.S. cities by 2017.
Here's how it works: Someone with a vehicle to sell pings Shift, which collects the car and zips it back to its warehouse for a thorough mechanical audit and some light refurbishment. If the ride passes muster, Shift and the seller agree on a guaranteed minimum price and the vehicle is listed on Shift's site.
When prospective buyers schedule a test-drive, one of Shift's “
car enthusiasts” swings by with the vehicle. In the event of a sale, Shift keeps half of every sales dollar over its guaranteed minimum price.
Shift claims that sellers, generally, pocket about 10% more than they would on a dealership trade-in, while buyers spend about 15% less than they would at a car lot. And all involved get to skip the crapshoot that is the classified market.
“Ultimately, marketplaces win when they offer a better customer experience for less money,” says Shift co-founder and chief executive George Arison. “We have the opportunity to do that here.”
Shift declined to detail its financial results or sales data, but it's fair to say the business is still pretty small. On Monday morning, just 163 cars were for sale on its San Francisco site and another 46 were in Los Angeles. This morning's funding announcement with Goldman comes about 10 months after Shift raised $24 million in a round led by Draper Fisher Jurvetson and Highland Capital Partners.
Shift's model is certainly not perfect. The process of actually driving to a dealership and chit-chatting with a salesman tends to weed out people who simply want an exciting test drive and have no intention of buying a car. With Shift, that buffer isn't there. Anyone who wants a gratis joy ride in a Nissan “Godzilla” GTR can now
order one up by iPhone. And to a bachelorette party within striking distance of wine country, a fleet of free Porsches probably sounds like a great idea.
Meanwhile, there is no shortage of rival startups promising to disrupt the business of buying and selling cars. Beepi, a Los Altos, Calif.-based outfit, operates a remarkably similar sales platform, including a
thorough inspection and vehicle delivery. The only major difference is that Beepi, which was on the hunt for a
$300 million round of funding this spring, doesn't offer test drives. “We're not set up that way, and it's what enables us to offer you such amazing prices,” Beepi explains on its site.
Carvana, a
one-click car market focused on the Southeast, doesn't offer test-drives either. But it does have a used-car vending machine. (Elon Musk take note.)
Shift says it will win with technology. Crammed with computer scientists from California's blue-chip tech companies, Shift says its listing platform is without peer and it is better than its competitors at pricing vehicles and scheduling its workers.
Software engineers aren't cheap, nor are delivery drivers and the massive garages near urban centers. But Shift had an edge over classic dealerships: no-cost inventory. The startup never actually buys any of the vehicles, acting instead as a conduit between the seller and eventual owner. “We're going to be one of the largest car sellers in the world without owning cars,” Mr. Arison says.
Will Shift change the game? Who knows? It's maneuvering in a crowded space with another $50 million in the tank, trying to address several used-car pain points at once. Some established rivals have made great search platforms for finding cars without offering much in the way of service and sales help. Other would-be disruptors handle the sale well but aren't so hot on the search front.
Shift is also selling a measure of trust with its mechanical audit and a seven-day window in which it offers a full refund to unhappy customers. Mr. Arison says those features make shoppers more comfortable buying older vehicles than they otherwise might, giving it access to a larger slice of the market.
And the market is massive, roughly
$640 billion a year at the moment, according to TrueCar, another digital car-shopping platform. When things are really humming, Americans buy almost 45 million used cars every year.
Mr. Arison, however, is still on the hunt. He's in the market for a
BMW i8 and has yet to find one on Shift.
