The market for new and used cars has been on a wild ride for the past two years. Even with inflation broadly on the rise, price increases for vehicles still stand out. New car and truck prices jumped 12 percent last year, while used vehicle prices shot up 37 percent.
Jason Trevisan has had a front-row seat to the latest trends. Since January 2021, he has been the chief executive at CarGurus in Cambridge. The company runs one of the world’s most popular websites for listing and selling vehicles.
CarGurus started as the brainchild of Langley Steinert shortly after he left his prior startup, TripAdvisor. But after running the company for about 15 years, Steinert decided to step back and handed the reins to Trevisan, who had been the firm’s chief financial officer and before that spent 12 years as a venture capitalist at Polaris Partners.
Trevisan took over as CarGurus was expanding from just listing vehicles for sale by dealers to also handling the sales process. That included creating the popular “instant max offer,” buying used cars from consumers and selling them to dealers. The Globe spoke with the CEO recently to discuss the state of the market.
Q: CarGurus lists prices for thousands of cars, so you must have a first-hand view of the craziness of car prices over the past year. What’s behind the big spike in used and new car prices?
Trevisan: Sadly, we joke here that every year, there’s some big jolt to the auto industry. And so two years ago, it was when COVID first struck. The dealerships had to close down and couldn’t have people come in to test drive cars. Last year, around the same time, was when the supply chain constraint really hit in auto.
And in very simplified terms, what happened was the auto manufacturers canceled all of their new orders for chips when COVID first struck. And then when they realized that production should resume again, they got back in line for the chips and they got back in at the back of the line. So auto manufacturers are not producing nearly as many new cars as they normally do. At the same time, in 2020 and 2021, demand for cars increased because consumers were moving out to the suburbs and consumers did not want to travel on public transportation. And so you had high demand, limited supply. And that drove up the prices of used cars.
Q: On the face of it, a shortage sounds bad for a company that sells cars. But you’ve done quite well (revenue increased 73 percent last year to $951 million). Why is that?
Trevisan: [The shortages] meant that a dealer who typically has 100 used cars on their lot might be sitting with 40 used cars. And they were able to sell them at very high prices quite easily. That impacted each of the areas of our business.
In our listings business, which is driven by dealers subscribing to our platform to market their cars, many dealers cut back their marketing budgets. They said, I’ve got fewer cars and I don’t need to market as aggressively.
Conversely, on the CarOffer wholesale side, dealers said, if you have a new way for me to try and [acquire] cars, I will try it. And so a lot of dealers were willing and eagerly tried using our CarOffer wholesale platform, which is an incredibly efficient and effective platform to source cars from if you’re a dealer. And so the inventory shortage has helped that ... platform grow faster than it probably otherwise would have.
Q: It seems like maybe car prices have peaked and the supply shortages will ease soon. What have you seen from your vantage point?
Trevisan: The prevailing wisdom from a few months ago was that the inventory shortage would likely abate toward the end of this year. But the tragedy and disruption occurring in Russia and Ukraine right now is creating a new concern about further supply chain disruption. Because some of the metals are sourced [from the region], and also some of the downstream flow of vehicles between Europe and the US. You’re starting to hear some sentiment that the supply chain issue in the US for autos might run even longer than originally expected. That’s a very dynamic and fluid hypothesis that is hard to substantiate either way. We have seen some inventory, sort of like water levels, start to rise a bit.
And we’ve seen pricing of units also plateau and even start to come down a little bit. I think that is a function of anticipating some improvement in the supply chain and inventory ... and also consumers really adjusting their own appetites and saying, you know, I’m going to wait, rather than pay 30 or 40 percent more than I would have a year ago.