Power Pitch

Point, click and have a car delivered to your door

Power Pitch

Most people find haggling with a used car salesman about as fun as root canal, but there’s a startup called Carvana looking to change the game.

“We want to make buying cars fun again,” said founder Ernie Garcia.

CNBC gave him 60 seconds to prove he has the drive to move his start-up into the fast lane to success. 

Click the video above to see if he can persuade our panelists and audience that he can change how people feel about used-car shopping.

Shifting gears

“Car salesmen are generally the least-trusted people consumers deal with,” Garcia told CNBC.

Before starting Carvana, the entrepreneur spent six years at DriveTime, a dealership that helps people with credit problems buy cars.

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Source: Carvana

“We think that for a lot of people that current process is broken, so we want to try to fix it,” Garcia said.

He believes he’s fixed the process by taking the entire car-buying experience online. With Carvana, users can point, click and finance a used car in “as little as 30 minutes,” the site says.

Garcia told CNBC that if clients want a vehicle delivered, Carvana will drop it right at their door. The website lets users search an inventory of about 400 used cars—all owned by Carvana—access information about them and view them from every angle with the site’s 360-degree (patent pending) photo technology.

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Source: Carvana

Whether customers want to pay cash, or have the purchase financed, all contracts are signed electronically. Carvana offers free delivery within a 75-mile radius of its hub in Atlanta (fees apply outside that range) or customers can pick up their car just 24 hours later.  The hub operates like a giant vending machine for cars. Clients enter a code, and the company’s “auto-vending system” releases the vehicle to its new owner.

Carvana has only the Atlanta hub, but it will subsidize $200 of the airfare and provide free transportation from the airport to a buyer from outside the area picking up a car. 

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According to the company’s website, the entire process is transparent and stress-free: “No pressure. No fast talking. No managers or back rooms. You are in complete control.”

Garcia told CNBC that the cost efficiencies of his online model create savings that he can pass on to consumers.

“We have a $1,500 cost structure advantage,” he said. “We feel very confident that we’ll be able to provide customers with a better deal than going to a dealership.”

Carvana’s Competition

Power Pitch panelist and CNBC’s auto reporter Phil LeBeau had concerns about the competition.
“What’s to stop CarMax (KMX), AutoNation (AN)—any one of the large dealership chains to say, ‘You know what, we like this business model, let’s do it ourselves’?”

“We’re not thinking about how do we supplement a dealership experience, or how do we move the dealership experience online,” Garcia said. “We think about what that customer in that mind-set wants at that moment.”

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Tom Kontos is the executive vice president of Adesa, one of the nation’s leading used-car wholesalers. 

He estimated that the used-car market had sales of almost $380 billion last year. That included in-dealership, online and person-to-person sales.

Garcia argued that market is big enough to accommodate many winners.

“We’re not building to be the only, we’re building it to be the best. … Competition is just validation of the model, and we know it’s coming.”

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Source: Carvana

Founded last year, Carvana started delivering nationally in November.
Garcia would not disclose how many vehicles it has sold so far but did say that the company plans to create more hubs faster than originally planned and expects a couple of openings in 2014.

Carvana is backed by DriveTime, which has more than 100 used-car dealerships in the U.S. It has invested $15 million and committed up to $25 million, depending on Carvana’s performance.

See Ernie Garcia #powerpitch his startup @Carvana to Power Pitch panelists CNBC’s auto reporter Phil Lebeau @Lebeaucarnews and @CorumGroup President Nat Burgess and host @TylerMathisen.

—Additional reporting by Joanna Weinstein and Ray Parisi

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