Linda Lo tried shopping for a car in the usual way, and like everyone else, she hated it.þþMs. Lo, 24, is a manager at an online freelance placement company and has been in the market for a used car for more than a year. She tried Craigslist, but found it difficult to trust strangers on the site. Car dealerships were worse. The sales employees were either inattentive or cloying, the finances opaque, and the whole process was time-consuming and inconvenient. At one dealership recently, a salesman asked Ms. Lo, “Are you here with your parents?”þþSo a few weeks ago, Ms. Lo did what anyone her age does when confronted with a hurdle in the real world: She escaped it virtually. Ms. Lo found a novel online dealership, Beepi, which acts as a broker between sellers and buyers of used automobiles and which holds the potential to alter the image of the perilous used-car market.þþBeepi had the exact car model Ms. Lo was looking for, down to the color: a red, 2014 Lexus IS 350, a luxury sedan that usually sells for around $40,000. On Beepi, the car — which had undergone a 185-point inspection by the company’s mechanics, similar to an auto dealership’s “certified pre-owned” program — was $35,900, including free delivery.þþ“The process was spectacular,” Ms. Lo said one recent morning outside her home in San Jose, Calif., as she waited for the car to arrive. A few minutes later, a flatbed truck pulled up with the Lexus. A giant, gold bow was affixed to its hood. Neighbors thought Ms. Lo had won a sweepstakes. After signing a few papers and sitting through an extensive tutorial by a Beepi mechanic — he even helped Ms. Lo connect her phone to her car’s audio system — the vehicle was hers. “It’s everything and more than I expected,” Ms. Lo said.þþTo say that Beepi is disruptive, in this age of disruptions, sounds clichéd. Yet after just a year of operation in California, Beepi is now buying and selling hundreds of cars a month and is on track to book revenue of $100 million over the next year, the company said. The start-up has raised nearly $80 million in financing and it plans to expand to seven additional regions nationwide by the end of the year.þþBeepi’s rapid growth illustrates something deeper about the role the digital world keeps playing in our lives: There’s no limit to it. A few years ago, it seemed reasonable to assume there were some sectors of the economy that would resist the pull of the Internet and which most people felt were better left offline. Shopping for groceries or eyeglasses, say; now both those tasks are moving online.þþBeepi and similar competitors, including Carlypso and Carvana, are pushing people to cross another threshold on the way toward a digital-only life. Although auto experts doubt that online-only car-buying experiences will become the norm, it would be wise not to discount their rise, for the simple reason that the Internet remains hungry. As people grow more accustomed to doing pretty much everything over computers and phones, the Internet tends to consume everything in its path.þþYet Beepi and others are coming up against some previous examples of online car sales that didn’t take off. EBay, for instance, has long offered cars, but its business remains small. Still, the Internet has been edging into car purchases in other ways: Craigslist and AutoTrader long ago replaced classified auto listings, while Edmunds and TrueCar have tried to bring transparency to the market.þþBeepi began with a lemon of a used car. A few years ago, Ale Resnik, who was then at business school at the Massachusetts Institute of Technology, bought a 2010 Jeep Liberty from a dealership. The car caught fire while his wife was driving it and the dealer didn’t want to take it back. To Mr. Resnik, the failure seemed out of step with the way he shopped for most goods; it lacked transparency and consumer friendliness.þþWhen Mr. Resnik began investigating the auto sales industry, he found that more than 90 percent of American car buyers consulted the Internet for purchases and a rising number of people worldwide say they would buy a car entirely online. According to a study by the research firm Capgemini, about a third of Americans and two-thirds of Chinese who were asked said they would buy a car over the web. To Mr. Resnik, the latent consumer interest was a starting point, and along with a friend, Owen Savir, he set out to create a system to bring to car shopping all the conveniences we’ve grown used to with other online purchases.þþ“We just thought that the car market was broken,” Mr. Resnik said.þþAt the core of Beepi’s business model is a pricing trick. There are three relevant prices for any used car. The trade-in price, which is what a dealer will give you for your car; the private sales price, which is what you can get if you sold it directly to someone else; and the retail price, which is the price the car will command at a dealership. Dealers pay the trade-in price for vehicles and then sell them at the retail price. On some cars, that spread can be worth 50 percent.þþBeepi thinks it can make a profit while operating within a tighter pricing band. When you list your car with the site, the company’s pricing algorithm, which consults data on historical car sales in your area, offers a price at least $1,000 more than you can get by trading in your car at the dealer. That is still less than what you would get selling privately, but Beepi’s price is guaranteed. If your car doesn’t sell within 30 days of listing on Beepi, the company will buy it from you.þþOn the other side of the transaction, Beepi sells cars at prices lower than comparable certified used cars at dealerships. It can do so, the founder says, because its overhead is lower — it doesn’t have to maintain parking lots to house cars, because the vehicles stay with the sellers until they are sold. Also, because it buys and sells cars over a wide area — currently, any city in California and Arizona — it can take advantage of supply and demand disparities in different regions. Finally, Beepi caps its own fee at 9 percent, depending on price and demand (it will take as little as 1 percent). þþ“When you put it together, we think you can give more to sellers, more to buyers, and make up to 9 percent of the price,” Mr. Resnik said.þ þBut if Beepi is faster, more convenient, and a better financial deal than the traditional car market, it also suffers one huge downside. Beepi does not let buyers test-drive cars before buying. Instead, it takes a page from other online retailers’ return policies. Like a pair of shoes from Zappos, Beepi’s cars come with a 10-day, try-it-out money-back guarantee. If you aren’t satisfied, the company will send a truck to take the car away free.þþThe company positions this as better than a dealer’s test-drive. “It’s a 10-day test drive,” Mr. Savir said. But that could be a tough sell.þþDavid Greene, an auto industry analyst for Cars.com, said he was skeptical that a large fraction of buyers would ever buy without test-driving a car.þþ“Our research shows that people don’t exactly know what they need until they get in a car and drive it,” Mr. Greene said. “While there’s a lot of things that people don’t care for when visiting dealerships, it’s hard to replace that personal interaction online.”þþAnd if car buyers begin test-driving cars at dealerships only to buy at Beepi — the “showrooming” problem that has bedeviled many offline retailers — dealers may begin lobbying against Beepi’s rise, Mr. Greene said.þþNicholas Hinrichsen, co-founder of Carlypso, a Beepi competitor that sells cars online on a slightly different business model, was skeptical that Beepi could maintain its money-back guarantee as it grows. “It’s incredibly expensive,” Mr. Hinrichsen said, “and my business model wouldn’t be able to bear that.” On Carlypso, you can return a car if it’s defective, but not if you simply don’t like it.þþMr. Resnik of Beepi said these weren’t concerns for him. So far, he said, only a handful of people have returned their cars, at a rate “much, much lower than 1 percent.” And he isn’t worried that there won’t be consumer demand in buying cars without a test-drive. “As people buy more and more online, they’re getting used to it,” he said. “It’s going to happen.”þ
Source: NY Times
