Posted on 02/11/2022 11:52:19 AM PST by Red Badger
Photo: Honda
Both the new and used car market is a hot mess right now, and will be for sometime. Just how hot of a mess are we talking? Well, a writer for The Verge managed to sell his 2014 Honda Fit to Carvana sight-unseen for $20,905—$90.20 more than he paid for it brand new off a dealer lot. That’s a mighty caliente market.
How could such an old car possibly be worth more today than when it had 23 miles and still smelled like plastic? How could a company that buys such cars at such high prices before even seeing it double its profits year after year? That’s what Sean Hollister, senior news editor at the Verge, wanted to know. Carvana told Hollister that, like most things in this world, it’s all in the algorithm:
It turns out that the “buying my car sight-unseen” part is actually pretty easy to explain. Carvana’s founding team realized it could never have perfect information — no buyer ever does — yet that doesn’t stop thousands of cars getting sold on the auction block with no test drives and no mechanical inspections either. Somehow, human bidders with relatively little information are still able to come to an agreement on the true price of a car. So Carvana built an algorithm that performs similarly to the human bidders at those kinds of auctions and now trusts it to offer you a guaranteed sum of money and show up with a pre-printed check instead of haggling on the driveway.
The system combs through public databases that record insurance, registration, mileage, accidents, and more before it issues that initial quote — and it doesn’t pay top dollar for any car that’s been in an accident. (Carvana actually gave me the lowest bid of any online service for my wife’s Honda Accord, the opposite of what I saw with my Fit, because it got in a minor fender bender a while back.)
According to Carvana’s Tom Taira, who led product at competitor TrueCar for over a decade, the actual quote you’re seeing primarily revolves around three factors: what the car would sell for on the wholesale market today, what Carvana projects it will be worth, and which cars Carvana needs to stock in its inventory. “The miles on it, the accidents on it, the condition that you’ve reported — all of those things are adjustments,” says Taira. But they’re not at the algorithm’s core.
And it’s that third factor, Taira guesses — the need to fill in holes in Carvana’s own inventory of cars — that might have caused the algorithm to aggressively bid for my seven-year-old blue stick shift Honda Fit with its silver trim and alloy wheels.
While the price Carvana paid for Hollister’s car was fairly high and there are occasional overpayments for vehicles, Carvana released a statement standing by the price. The car-selling app said the $20,905 paid for the little hatchback was aggressive, but not overly so and that it expects to make at least a slim margin on the vehicle. Even after transportation to another state, taxes, repairs and any maintenance, Carvana is still planning on making money on a $20,905 seven-year-old vehicle. Hollister’s trick to snagging such a high price was constantly checking multiple used car bidding apps and sites for the best offer. When he spotted a remarkably good price, he went for it.
Related Stories Romain Grosjean Is Ready To Win His First IndyCar Race Nissan 300ZX Convertible, Steyr-Puch Pinzgauer, Honda Stepwgn: The Dopest Cars I Found For Sale Online What Automaker's Lineup Would Make The Best Superhero Team? Carvana told Hollister that not all customers should expect such luck, especially after the market rights itself. When that will happen is anyone’s guess. Used car prices are bananas right now. The average price of a used car in December was $27,500 as the ongoing chip shortage is driving people who might normally opt for a new vehicles into the used market. In December 2021 there were 1.8 million fewer vehicles on dealer lots.
The entire report from the Verge is very interesting and I encourage you to read the whole thing.
If you can pay cash, negotiation takes on a whole new character.
I actually had a little fun buying from a dealer last year, using “Lundegaard” as a verb, as in “I don’t have time to sit around waiting while you Lundegaard me.”
This article made me curious, so I just checked.
I have a 2017 F-250 Super Duty 4x4 with a flex fuel V8. It’s a stripped down commercial package. I only use if for farm related work, and it only has 11k miles on it.
Paid $35k for it brand new off the lot in 2018.
Bluebook for private sale is $50k.
Unbelievable.
Hondas are really good cars and hold their value well. But anyone willing to pay $20K for a 7 year old Fit needs to seek psychiatric help.
One of our neighbors in NM had a 77 Bronco, and even 20 years ago people were always trying to buy it from them.
Now I have that happening to me when I go out in my 95 F350 CCLB with the fuel economy special: the 460 V8.
Go out and check the used car lots prices. They are CRAZY!............
Brother, anything like that is a magnet. 5 miles to the gallon, be damned
It isn’t just cars. We bought a house in 2015 for $221,000. We sold it last month for $385,000. We bought a new house with land and still pocketed $60,000 after putting 20% down.
Yeah, but where I’m at, for $4K more you can get a brand new Civic. And yes, they have them in stock.
My dad has a 98 or 99 Dodge longbed diesel and at least once he was offered a blank check for it.
He still has it.
I’d love it except it’s a longbed.
I guess so!
I picked it up last spring before the car market totally blew up.
Put that on eBay motors and see what you’d get for it.
Add that seller has the right to refuse at any time.
Tell your nephew not to feel too bad.....I feel that way every time I walk out of one of those clip joints after a purchase.
“If you can pay cash, negotiation takes on a whole new character”
Yeah there was a time for that, not so much now I don’t think......especially right now. At least not where I’m at.
Nope, we always bought our cars with cash, this time around, no negotiating.
I curse the day they came up with “No Haggle Pricing”.
I think we bought at just the right time. Our car is valued on KBB at several thou more than we paid for it last July 2. And at our age, we may never have to buy another vehicle. So we’re done with car dealers.
“I curse the day they came up with “No Haggle Pricing”
Isn’t online car buying e.g. carvana and Zoom like that? The price is what it is?
smells like team spirit...
I want to hang on to it for a bit. The 460 is a great performance platform, and I want to have a little fun (fun, as in stroker kits, cams, etc.).
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