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Used car retailer Carlotz goes public

Yahoo Finance’s Alexis Christoforous and Brian Sozzi discuss the online used car industry with Carlotz CEO and Co-founder Michael Bor.

Video Transcript

BRIAN SOZZI: Used online car retailer CarLotz is going public with SPAC company Acamar Partners, making it the third US online car seller to go public this year. Joining us now to discuss is CarLotz Founder and CEO Michael Bor.

Michael, good to see this morning. So we have talked to all of your competitors-- Vroom, Shift, and Carvana. Take us through your business model. How are you different?

MICHAEL BOR: Sure. Thanks, Brian. Thanks for having me. Yeah, we're the industry's only consignment-to-retail used vehicle operation. So we take vehicles from both consumer sellers, who before we existed would either trade their car in, or try to sell it themselves on Craigslist, or parking it on the side of the road. Through our consignment model, we take those vehicles straight through our hubs to retail buyers.

We also do that for corporations and fleets that have vehicles. So we sell vehicles for banks and financial institutions, fleet management companies, leasing companies, Fortune 500's down to mom and pop businesses. Anyone who otherwise would sell a vehicle at wholesale, we take those vehicles, we recondition them, make them perfect, and sell them at retail. So we essentially, from a buyer's perspective, have a business model that's very similar to the Carvanas and Vrooms in that you can buy a vehicle totally online.

With us, you can buy it face-to-face or anywhere in between. But where our business model differs substantially is the way we source the vehicles. We take them straight from the seller and take them straight to the buyer. We don't go through auction. We don't buy vehicles without knowing anything about them. We're taking vehicles from sellers straight to buyers.

ALEXIS CHRISTOFOROUS: Michael, you've got some pretty lofty sales goals. I'm reading you're anticipating a rise of 145% over the next three years. How do you expect to get there? And let me also ask you about inventory. If you're relying on folks to want to sell their second-hand cars, what happens if, you know, there's another huge economic downturn and people are going to hang onto their cars and not want to resell them?

MICHAEL BOR: Yeah, great questions. I mean, first of all, our inventory has never been fuller. We need more hub locations to get our inventory through. Our model nets the seller thousands more than they otherwise would get if they sold it to a dealer on a trade-in, or tried to sell it themselves, or for our corporate accounts if they took it to wholesale.

So because of the value that we offer to the sellers, we're finding more inventory than we know what to do with, which is fantastic. We have found that-- you know, this industry is fantastic. It's one of the more stable industries in our economy. If you look back over the last two decades, the used vehicle market has been around 40 million units every year, even through the depths of the Great Recession all the way through what we've seen over the last few years.

And the reason is a used car is a need-based good. A new car is a want. And so we do see some significant ups and downs in the new vehicle market, but the used vehicle market is very, very stable. So we've seen some-- we've seen great inflow of vehicles that we're able to sell for our clients. And our growth model really just relies on opening new cities where we can transact all these vehicles that we have to the consumer and get them a great deal on their car.

BRIAN SOZZI: Michael, staying on what Alexis mentioned on your growth rates, by 2023, you're predicting $1 and 1/2 billion to $1.7 billion in sales. Now, this year, you're estimating about $110 million. So there is-- you are looking for a big jump. On $1.6 billion in sales, are you profitable?

MICHAEL BOR: Yes. Another thing that's different about our business is that we have grown in a very deliberate manner so that every time we've raised capital we've gotten to profitability before we've raised capital again. And so this will be our fourth capital raise. To date, we've raised $35 million.

As part of this transaction, we'll have several hundred million dollars to aggressively pursue our growth goals. We are a profit first business, and we will get to profitability. Now certainly, during the next few years of intense growth, we will dip below profitability and that's obvious. But yeah, the number one goal of our business is to grow profitably.

ALEXIS CHRISTOFOROUS: I'm sure you saw the announcement by California's governor not long ago saying he wants to move to all electric vehicles being sold in the state by 2035. I mean, I know that's looking-- that's looking far out. What's your exposure to the California market? And how could a decision like that or a mandate like that affect business? Because I would think it would push up demand for older cars and also push up prices for those cars.

MICHAEL BOR: Yeah, it's a great question too. You know, we don't currently have a location in California. We do sell cars to all 50 states, and so through our online omni-channel buying journey, you can buy a car if you are in California. We think the mandate to get to electric is obviously great for the environment, but it's just another type of vehicle.

So you know, we currently sell a decent amount of electric vehicles today. If certain states mandate electric more than others, then we'll probably see an increase in electric vehicle sales. But at the end of the day, the dealers that will be most harmed by the shift to electric vehicles are those that really rely on service and parts, because electric vehicles actually use less parts and require less service.

We're a business-- we're essentially a marketplace. We're selling vehicles. We're reconditioning internally so the vehicles are great when they're being sold. We don't do after-sales service on the vehicles. Those are really the types of dealerships that might be harmed by a shift to electric vehicle.

ALEXIS CHRISTOFOROUS: Michael, with all the technology out there, the latest and greatest in these new cars, why do people want these older cars?

MICHAEL BOR: They're a great deal. You know, not everybody is buying a $50,000 to $70,000 vehicle. Our average vehicle price ranges anywhere from $12,000 to $20,000. And especially in difficult times, you know, we sell a lot of vehicles that are sub $10,000, because that's what people need to get to work, to get their kids to school.

And so, you know, as a used vehicle retailer, we're able to support any type of car buyer. We have car buyers that buy sub $10,000 cars. We have $100,000 Bentleys. We sell whatever our sellers bring to us. And as a result of that, we have kind of a bell-shaped curve of inventory that most closely matches the type of inventory that buyers are looking for.

And you know, everybody's looking for a different type of vehicle. The fattest part of the bell curve of inventory in the used vehicle market is kind of that $8,000 to $12,000 vehicle. That's where most vehicles transact. And we certainly have a whole lot of those.