Due diligence

Corrie Thompson, director, Texas Department of Motor Vehicles, Enforcement Division

Traditionally, you would take a weekend to shop for and purchase a vehicle. You’d visit a dealership in person, connect with a salesperson, test-drive a couple of vehicles, then spend the afternoon doing paperwork and financing before finally driving home in your new car. But fewer and fewer people want to do that today. In the last decade, consumers have gotten more comfortable with making large purchases online, opting for the ease and convenience over anything else.

I know how they feel—I personally avoid in-person purchases as much as possible. It’s just so easy. You can do it from home and you don’t have to plan an entire weekend to look at different vehicles. Not to mention there are more cars available—your options seem limitless. Shopping online lets you know what’s really out there, rather than what you can see in a day or weekend when you’re driving around. This way, people don’t have to speak to a salesperson, they can do the research online and show the dealership exactly what they want.

And sellers can grow their customer base exponentially by selling vehicles online. People from all across the world can see a dealer’s inventory, while also potentially lowering the overhead.

Here in Austin, Texas, we see more and more dealers offering cars for sale online, and then delivering cars. In Texas, you’re still required to have a brick and mortar location where vehicles are displayed so customers have a place to go to resolve any problems, but not all jurisdictions require that.

There are still plenty of flaws with internet vehicle sales, however. First, consumers may have a hard time determining who is actually selling the vehicle—is it a private party or a licensed dealer? Without a physical location nearby, it may be harder to resolve any issues. And if you’ve never seen the vehicle in person, how do you know its exact condition? This is even more important with used vehicles. Some online dealers allow a certain grace period for returns, but not all. So, consumers have to do their due diligence.

For sellers, online sales could reduce the value of their brick and mortar locations. And if you never establish a connection with the customer, it’s harder to upsell them on things like additional features or warranties.

That said, online car buying is here to stay. Ultimately, I think people will weigh the risks vs. the convenience, opting for convenience. You can buy a house entirely online, why not a car? And when you’re stuck in an office all week, buying a car online saves you time that is better spent with your friends and family. Who wouldn’t want that?

A better way

Will Munsil, associate corporate counsel, government affairs, Carvana

E-commerce has been around for more than 25 years, but vehicle sales have typically lagged behind all the other products available online. Carvana was founded in 2013, and is now publicly traded and ranks as the 8th largest used car dealer in the country. Last year, we sold 94,000 cars.

Fundamentally, we recognized that customers were looking for a better way to buy a car. According to our research, car salesmen are liked less than members of Congress, which is saying a lot these days. We also discovered that the average customer spends about eight hours online looking for a car before going to a dealer to purchase it. We thought that people should be able to finish that process entirely online—from research to purchase.

We realize the challenge of selling a car entirely online, but we view people’s skepticism as an opportunity. To show people what they’re buying, we offer state-of-the-art photo technology, which includes a 150-point inspection, and a 360-degree tour of the interior and exterior (and we zoom in on any imperfections). We want you to know everything relevant about the car. We also offer a seven-day money back guarantee. So if you’re not completely happy, you can return it.

Where it’s required, we secure dealer licenses for physical locations, which include our popular vending machines. But we’re hopeful that a lot of the physical requirements could change soon. We encourage dealer regulators to make sure that they’re constantly updating statutes that are outdated and don’t envision an entirely online transaction.

We don’t need a new body of laws, but regulators should work more on the peer-to-peer transactions. That’s where the real fraud risk is, not with the bigger dealers.

While the demand is growing, online car buying is not for everyone. Some people will always want to buy their car in-person. There’s plenty of room in this space, and we don’t see a world without the need for actual dealerships.

Our customer mix is similar to the larger car-buying demographic. It’s not just millennials in pajamas buying a car from their sofa, it’s everyone. We’re happy to provide another option for consumers.

Know the risks

Larry Purdy, Chief of Investigations, Oregon Driver and Motor Vehicle Services

I’ve been involved with Oregon DMV vehicle dealer investigations for over 11 years. During that time, I’ve seen the number of internet vehicle sales dramatically increase, and all indicators suggest it’s going to continue to grow.

But it’s important for consumers and sellers to know the risks.

For consumers, it can be difficult to tell if the dealer is properly licensed or not. With a physical location, they have signage, you can ask to see their dealer certificate and they’re easy to find again. Unfortunately, we’ve seen cases of fraud, where someone took a photo of a car from a dealer’s website, advertised it online, had the customer wire them the money and then disappeared with the money. How do you know that won’t happen to you?

Fraud is a risk for licensed dealers, too. We’ve seen fraudsters find a smaller dealer that doesn’t have a large online presence, create a website using that dealer’s name. They use technology to create an impressive inventory of vehicles, and show their own contact information instead of the dealer’s. When someone wants to purchase a vehicle, they take their money and disappear, leaving the smaller dealer to pick up the pieces, including having to rebuild their reputation.

Much needs to be done to address issues like this. We, on the regulatory side of things, have been grappling with it for years. Many of our laws are antiquated and crafted before the era of internet transactions. Most jurisdictions would like an update, but it doesn’t seem to be a priority for most legislators. I’m betting it’ll happen when more lawmakers and their constituents become victims of internet sale scams, and the issue becomes personal to them.

As for the future of internet vehicle sales, it’s going to continue to expand. Because of the ease of buying online, people are willing to take on the additional risk, or they’re simply unaware of it. They just want a convenient way to shop.

We’ll probably see more jurisdictions taking a direct approach to reducing barriers to internet sales. Right now, we won’t license a dealer without a brick and mortar location, but some jurisdictions are looking into changing that. Many today are asking: Is that even necessary anymore? We’ll have to wait and see.