Startups Offer New Ways to Buy and Sell Used Cars – U.S. News & World Report
Consumers have long
distrusted car dealers. In DMEautomotive’s 2014 survey of 2,000 automotive customers, only 1 in 5 perceived car dealer sales representatives as trustworthy. While some consumers choose to cut out the middleman by buying or selling cars on Craigslist or eBay, trust can be even dicier on those sites. However, those wary of these options have a growing number of online alternatives for buying and selling cars. U.S. News looked at three startups that are attempting to improve the car-buying process.
Peer-to-peer car-buying website Beepi launched last year in San Francisco and closed $60 million in funding last fall. The company is a licensed car dealer in California and also accepts cars from private sellers in Arizona and Texas. “You list your car on Beepi.com and get a guaranteed price that will never change,” says co-founder and CEO Ale Resnik. That means no room for negotiations between buyers and sellers. In fact, buyers and sellers don’t even have to interact because Beepi offers free car delivery to buyers in 200 cities.
“Once you have your guaranteed price, you schedule a Beepi inspection, and if the car passes inspection, we guarantee it’ll sell in 30 days or less,” Resnik says. Beepi has a team of full-time inspectors who complete a 185-point inspection and photograph the car for posting on the website.
But getting your car listed on Beepi isn’t easy; it only accepts one out of every three cars. “The car has to be six years old or newer, never been in an accident and title has to be completely clean,” Resnik says. “You’re guaranteed that every car on Beepi.com is an absolute perfect car.”
If your car doesn’t sell within 30 days, Beepi will buy it from you. The company then takes a 3 to 9 percent cut of the selling price, depending on the vehicle. On the buyer side, you don’t get to test-drive the car before it’s shipped to you, but you do get a 10-day money-back guarantee, and you can pay via credit card, check, wire transfer or even Bitcoin. Beepi also works with several banks and
credit unions to offer financing.
After reviewing Beepi’s 185-point inspection list, Jeff Ostroff, CEO of CarBuyingTips.com, says it’s pretty thorough – except that the inspection doesn’t occur with the car on a lift. When a car is in an accident, mechanics often “don’t fix the damage underneath,” Ostroff explains. “Just because a wreck doesn’t show up in Carfax doesn’t mean it wasn’t in a wreck.” However, buyers could in theory
hire their own inspector during the 10-day buyback period and return the car if they find signs of damage underneath.
Instamotor is a free mobile app available on iOS (coming soon to Android) that reports $50 million in peer-to-peer vehicle sales per year. The mobile app is available across the U.S., but many of users are based in California (headquarters are in San Francisco), and inspection locations are available across the Bay Area, with a Los Angeles location opening June 15. Instamotor offers a three-day buyback guarantee. “If it’s not what you expected, we’ll purchase that vehicle back from you,” says Val Gui, Instamotor co-founder and a former car salesman. Buyers also get a free Carfax report, an inspection at an Instamotor inspection station and a three-month, 3,000-mile mechanical guarantee. Using the vehicle identification number, “we look for things like odometer rollback issues, for structural damage, title issues, vehicle registration issues, lemon history,” Gui adds.
One criticism of some car-buying startups is that they’re not licensed as car dealers and are therefore not subject to the same regulations and consumer protections. Gui maintains that Instamotor is not trying to replace or substitute dealers. “The dealer market is pretty well-served, but Craigslist and the private party market is still sort of a Wild West,” he says. As a platform for bringing together private parties, Instamotor does not handle the transfer of money or title. Most buyers pay the mutually agreed upon price with a cashier check or certified check, Gui says. Since check fraud is a big concern for sellers, the company is working to offer a check verification feature where the seller could scan a photo of the check and Instamotor’s team would reach out to the bank and verify the check’s legitimacy within 10 minutes. “The only downside is it needs to happen during business hours,” Gui points out.
Instamotor doesn’t take a cut of the transaction, instead, it earns money through referrals to auto insurers. “For each of the vehicles that are off our app, we’ll get insurance quotes and insurance companies give us a small commission on that insurance purchase,” Gui explains. However, buyers can still benefit from Instamotor inspections and guarantees even if they
purchase insurance elsewhere.
In contrast to peer-to-peer marketplaces such as Instamotor and Beepi, Mojo Motors offers buyers more transparency around dealer pricing of used cars. Using inventory feeds from car dealers, the website (which is easier to view on a smartphone or tablet) lets users follow cars they’re interested in and receive alerts if and when dealers drop their price. “Dealers want to sell their cars quickly,” says founder and CEO Paul Nadjarian, who previously worked at eBay Motors and Ford Motor Co. “The way they make more money is how fast they can turn the inventory. Every five to 15 days they cut their price. The average car has three price drops and drops on average of $1,000 or a little bit more.”
Users can see a price history and the number of others following a vehicle, then reach out to the dealer directly through the website to
arrange a test drive. Some dealers offer an extra discount to Mojo users as an incentive to seal the deal. “You can not only get a better experience, you can get a better deal,” Nadjarian says. Mojo Motors is free for car buyers to use, but car dealers can pay for premium positioning and subscriptions to help boost their referrals.
While these car-buying startups and others like them have appealing features, Ostroff isn’t sure of their long-term viability. He points to an earlier startup called CarWoo! that promised a better
buying experience for new cars, but it lasted five years. “I thought it was a very powerful tool for consumers, but that company didn’t have a good monetization plan,” he says. Lobbyists for car dealers aren’t keen on new ways to buy cars either. “In some states, that dealer lobby is very powerful,” Ostroff adds.
With any dealer or car-buying tool, your mileage may vary, but for now it’s worth considering them in your search.