How do you become the best place to buy or sell a car online, without earning the undying wrath of traditional car dealers?
By making the dealerships your partners. That’s the business model that has built Cambridge-based CarGurus into the top US online destination for car shoppers, with about 36 million unique visitors each month. And even though CarGurus is now taking on a much larger role in the car-buying process, the company has no intention of becoming an independent online car dealer, like Carvana or Vroom.
Instead, CarGurus chief executive Jason Trevisan said the latest innovations make the site an even better deal for the 40,000 US car dealers who use the service, amid a surge in online car shopping driven by the COVID pandemic.
“We are evolving from a marketplace to a transaction platform,” said Trevisan, the former CarGurus chief financial officer who took the helm in January. “I honestly don’t think anybody loses. It’s a better experience for both the dealer and the consumer.”
CarGurus was founded in 2006 by Langley Steinert, cofounder of travel site TripAdvisor. Originally built as an online community for car buffs, the site soon began offering a price index for thousands of new and used cars advertised online, in cooperation with thousands of dealers. The company analyzed the resulting flood of data about makes, models, and prices, and created search algorithms that show potential buyers the best available deals. The company has also expanded into the Canadian and UK car markets.
Any car dealer can participate in the CarGurus network at no cost. But the 24,000 US dealerships who pay for a CarGurus subscription get extra perks, like a higher priority in search rankings and the names, phone numbers, and e-mail addresses of potential buyers.
Meanwhile, shoppers can see a lot more than, say, every 2015 Toyota Camry for sale within 50 miles. CarGurus also uses proprietary software to estimate each car’s value, indicating whether the dealer is offering a reasonable price. In addition, there’s information on the car’s service history, a detailed list of its features, and data on how long it’s been listed for sale and how many other potential buyers have checked it out.
“The car is the second most expensive purchase most people will make in their lives, so there’s a lot of risk aversion,” said Robert Dolan, a professor of marketing at Harvard Business School. “What CarGurus is doing is making customers feel more confident they’re not getting fleeced.”
And car shoppers have extra reason to be wary now, as car prices soar. According to Kelley Blue Book, the average price of a new car hit $45,000 in September, a record high. Desperate shoppers have flooded the used car market. That’s driven the average used car price in the third quarter to an estimated $27,000, according to car shopping site Edmunds.com.
At the same time, the pandemic lockdown forced car shoppers online during the months when they couldn’t go to showrooms. That’s caused a major shift in car-buying habits.
“People are still reluctant to buy a car entirely online. That reluctance is diminishing very quickly,” said Peter Zollman, founder of Advanced Interactive Media Group, an Orlando-based market research firm. “COVID sped up five years of innovation and activity into three months.”
This year CarGurus launched a feature that lets consumers arrange auto loans before they start shopping. The company has developed services that virtually eliminate the need for direct contact between buyer and seller. For instance, a dealer can drop off a car at a customer’s home for a test drive, or to close the deal.
For a $4.95 fee, CarGurus users can list cars for sale to individual shoppers. But in July, the company launched a new service to let consumers sell directly to used car dealers. The owner enters the car’s vehicle identification number and mileage. Based on data from thousands of dealers, CarGurus generates a cash offer for the car. If the seller agrees, the company sends a tow truck to haul it away.
Other CarGurus services are designed with dealers in mind. For instance, retailers who deliver can sell to consumers anywhere in the United States, massively expanding their potential markets. There’s also a new wholesale channel to help car dealers smooth out their inventories. A dealership with five too many Honda Accords can easily sell them to another retailer.
Innovations like these are helping CarGurus recover briskly from 2020′s COVID-induced slump. Second-quarter 2021 revenues grew 130 percent to $217 million, as the company cashed in on surging demand for new and used cars. (CarGurus became publicly traded in 2017.)
Even so, Trevisan said that pure online transactions still account for only about 1 percent of car sales in the United States today. But attitudes are shifting. A March 2021 study from the auto logistics firm Acertus found that 80 percent of car shoppers would now be willing to purchase a new car entirely online, without so much as a test drive. That compares to about half of would-be car buyers before the pandemic.
It looks like traditional dealers must expand their online options to remain viable over the long run. For many of them, allying with CarGurus may be the easiest option of all.