Sales of Vehicles Dec 2019- Feb 2021
Picture 1: Visual representation of Low Miles’s five forces
Source: made by the author 2 0 million used cars in
operation
1 ,000 new car dealerships 40,000 independent
dealerships
37
• Platform development – Anyone can get access to the required resources to create a similar
platform
• Access to inventory – Anyone can buy a car from private sellers. Must have a dealer’s
license to purchase cars from auctions. Must be a franchise dealer to purchase from franchise dealership auctions. Anyone with access to cars can sell cars like LowMiles.
All in all, the threat of new entrants is quite high but from an established company that has the necessary network of dealerships and resources to create the platform. There are many organizations in the automotive industry that can recreate a business model LowMiles.
Other barriers to entry would include making logistics more cost effective and customer acquisition is crucial to their success.
Threats of substitutes Table 12: List of substitutes
Mechanism Substitute Examples / descriptions
Search Classified Websites Craigslist, Facebook, eBay Motors, Cars.com, Auto Trader, CarGurus
Search Advertisements in newspapers
These advertisements that can be found in some local newspapers
Search and purchase
Auction houses Bonhams, Mecum, Sotheby’s Search and
purchase
Traditional Dealerships All franchise and independent dealerships Purchase Private sellers These are individuals selling their personal
vehicles Source: made by author
• There are many ways customers can search and purchase cars – the majority of the market
is still used to the “traditional” ways of buying.
• Cost performance – each substitute gives customers the ability to search and choose a car
to maximize their money
38
• Substitutes do not offer ways for customers to search and purchase cars entirely over the
internet
Threat of substitutes are high since the majority of the market is still accustomed to the traditional way of buying cars. Also, since cars a considered to be a large investment, consumers are more price-sensitive so they will look for the best value in a car, thus making other sources of information on cars more valuable.
Bargaining power of suppliers
• Medium switching costs – It costs dealerships time and resources to implement into their
operations and teach staff how to use the platform
• Large number of suppliers – There are over 18,000 franchise dealerships and over 40,000
independent car dealerships in the United States (NIADA, 2021; Wagner, 2021)
• Large number of distributors – There are many logistical providers who provide similarly
or the same services.
Bargaining power of suppliers is low because of the high number and direct alternate suppliers.
The focus is to find dealerships with high-quality used car inventory which can be found at some capacity at most dealerships. There are plenty of logistical provider in the United States which offer similar services for similar prices.
Bargaining power of buyers
• Buyers switching costs are low- there are no monetary costs to switching between
substitutes or competition
• Buyers are highly price sensitive- buyers will switch sellers if another one offers a car
that is more attractive to the customer
• The high number of buyers relative to suppliers- buyers power is weakened since there
are more buyers than sellers
• Low dependence on the seller- Since there are many options in the market for buyers to
choose from
Bargaining power of buyers is low since the high number of buyers in the market. Although buyers have many options on the market, there are more buyers in comparison thus the power of buyers is low.
39 Industry rivalry
Table 13: Competitor size analysis
Source: (Carvana, 2021; Crunchbase, n.d.-a, n.d.-b, n.d.-c; Nasdaq, n.d.-a, n.d.-c, n.d.-b;
SaaS, 2020; Shift, 2021; Vroom, 2021; Yahoo Finance, n.d.), compiled by author
• Highly competitive- competitors have significant resources
• Highly competitive pricing – competitors have competitive pricing which is competitive
are competitive in local markets
• Offering similar quality cars – competitors offer similar types, manufactures, models at
similar prices just in different sizes of inventory
• Medium differentiation – all offer approximately the same financing, warranties, and return
policy just in different capacity
• Low to high barriers to exit- Shift and Vroom have assets that can be easily liquidated and
sold off. Carvana having the highest barriers to exit because of the size and types of assets it possesses makes it more difficult to exit.
Competition is strong and backed with large amounts of capital. Competition has been able to effective in their efforts to penetrate new markets. They have been able to grow at high rates due to their market reach and competitive pricing.
Revenue Net Loss
40
Major weak points are that competitors do not have any technology or infrastructure which cannot be obtained or replicated thus their main competitive advantages derive from creating high barriers by increasing costs and being backed by large investments.
3.6 Competitors analysis and comparison Business model comparison
Above is a simplification of how competitors receive cars, make them sellable, and deliver them to customers. These processes require a large workforce and significant amounts of capital to operate.
Cars are purchased from auctions, dealerships, rental car companies, or trade-ins. Purchasing cars in large amounts makes it difficult to have a person on-site to make sure the car is sellable or requires minimum resources to make it so. This is because cars are purchased from across the United States. This makes car buying risky because dealers face the risk of buying a car that can require too many recourses thus making the sale of the car unprofitable.
Figure 7: Competitor’s sales process map
Source: made by the author
Competitors need facilities to repair, detail, take photos, store cars and their fleet of trucks. All of which require technicians to operate and maintain facilities. Their fleet of trucks which require maintenance, personal, fuel, and insurance to operate making adding to the costs. The competitor’s business model is not profitable. They have not made a profit yet. As competitors sell more cars, they increase their net losses.
41 LowMiles business model
Figure 8: LowMiles sales process map
Source: made by author Main points:
• Cars start the process ready to sell
• LowMiles does not own the cars sold
• LowMiles does not repair, store, detail, take photos, or store cars
• Cars are shipped once
LowMiles does not have large operations like the competition. We are utilizing existing infrastructure which already works and adding the e-commerce tools. Processes that include taking a car and making it sellable are all done by the dealerships. LowMiles does not have to own large properties to fix, detail, and store cars. Also, LowMiles does not own and operate truck fleets like the competition. Logistical operations will be outsourced using Central Dispatch which is a logistical platform composed of over 13,000 logistical providers across the United States to ship cars.
How LowMiles generates revenue
Unlike the competition, LowMiles does not rely on the profitability of each vehicle sold.
LowMiles creates revenue from selling financing, insurance, warranties, and commission from each car sold. If dealerships would like a car or cars to be more visible on the platform, they can pay an extra fee per car or a monthly subscription for all their cars.
- Financing- LowMiles makes a percentage of the loan interest
- Insurance- Low Miles makes a percentage of the sale
- Warranties- LowMiles makes a percentage of the sale
- Commission- 5% with a $500 cap on the sale of the vehicle
- In-site advertisements- The pricing on in-site advertisements will have to be increased if
too many dealerships are paying for this service because it will defeat the purpose of being more visible than other cars on the platform.
42 Table 14: LowMiles in-site advertisement packages
Package Price for 1 month
1 car $20
5 cars $80
20 cars $240
100 cars $1100
Source: made by the author
Comparing LowMiles to competition
Table 15: Competitor’s differentiating factors vs. LowMiles Competitors Pricing Car price range
($8,000- $70,000) types and quantities of photos.
Warranty 100 days or 4,189 miles and optional
43
Source: (Carvana, 2021b; Shift, 2021a; Vroom, 2021b)
Competitors all offer approximately the same service, just in different capacities. Competitors compete on offering more attractive return policies, warranty options, and making the car buying experience simple and transparent. Carvana is the most competitive out of the three due their inventory size, consumer experience, and return policies.
Inventory type: Any car that fits the qualifications to be on the LowMiles platform, will be able to be on the site. Customers will be able to find almost every manufacturer on the platform.
The only manufacturers that customers will more than not likely to see on the platform is manufacturers that compose the up echelon of motoring such as Lamborghini, Ferrari, Maserati, McLaren, and hypercar manufacturers like Pagani, Koenigsegg, and Bugatti. This is because of the strict guidelines of selling cars from higher-end car manufacturers.
Inventory quantity: LowMiles inventory depends on the number of franchise dealerships that use the platform. As more franchise dealerships implement the LowMiles platform, more inventories will be available to consumers. There are over 18,000 franchise dealerships in the United States. One dealer group named AutoNation, which operates +270 dealerships, has a similar size of inventory compared to Carvana.
Inventory quality: LowMiles will only accept cars with low mileage. For a car to be considered low mileage, the odometer must read a mileage which is “low” in relation to the year of the car, and in some cases the model.
Figure 9: Sources of used vehicles by new-vehicle dealerships, 2020
Source: (Manzi, 2020)
According to a report done by the National American Dealership Association, on average new car dealerships get 65.3% of their used inventory from trade-ins. The benefit of trade-ins is that
6.80%
Truck delivery Truck delivery Truck delivery
Marketing channels
Online and T.V. Online and T.V. Online and T.V. Online
44
dealerships are purchasing the car in-person and directly from the owner. Unlike competing for automotive e-commerce, cars are bought in-person so it can be examined on the spot and does not have extra costs like purchasing from an auction. Extra costs include commission and shipping costs than having the risk of purchasing cars that are unprofitable.
Table 16: LowMiles inventory criteria
Used car criteria Measurement
Mileage 80,000 miles MAX
0-17,000 miles per year MAX
Years 2000-current
Makes and models All
Body Accident-free, little to no rust, normal wear
Source: made by the author
Pricing: The price of the vehicles depends on the dealerships which own the cars. LowMiles does not have any control over the price at which the dealership wishes to sell its car. To compete with the pricing of cars, LowMiles will allow cars no older than 2000 to be placed on the platform.
Consumer experience: Franchise dealerships have the tools and know-how for implementing in-person communications between customers and sales representatives virtually. Consumers will be able to call with video and to be able to talk to a sales representative who can show the car in real-time. This is something that the competition is unable to do because this would require significant resources to add to their platform. Sales representatives are already an existing part of the traditional dealership's system, and they can be used to sell cars virtually as well.
Return policy: This is something that will be up to the franchise dealerships to decide. It will be possible to negotiate a universal return policy to be competitive.
Warranty options: There are numerous third-party warranty providers that customers will be able to compare from. At the beginning stages of there will be no warranty options offered directly from LowMiles.
Distribution channels: LowMiles will be utilizing Central Dispatch for the distribution of vehicles. Central Dispatch is a system made of over 13,000 automotive logistical providers in the United States. This helps to connect to logistical providers who have free capacity on their trailers so they can carry more cars in a single direction.
Marketing channels: Competitors use online and T.V. advertisements to reach out to customers. Since the majority of the car buying experience is spent online, competitors try to place touchpoints along the buyer’s path. This is done by writing blogs, advertisements on social media, and advertising inventory on classified websites. Competitors take an extra step
45
and use T.V. commercials. LowMiles will be taking a similar approach minus T.V.
advertisements. Part of the marketing done by competitors is advertising their cars on classified websites such as CarGurus, AutoTrader, and Cars.com. This allows customers to compare their cars to those in local markets. To use these websites is expensive and could cost thousands of dollars per month. New car dealerships have already used some of these platforms. LowMiles will “piggyback” off new car dealerships by using their advertisements to simultaneously advertise LowMiles. This would cost LowMiles nothing. Customers all over the nation will be able to see that car is able to be purchased completely online through LowMiles.
3.7 VRIO analysis
Table 17: LowMiles VRIO analysis
V R I O
Competitive Disadvantage:
High dependence on dealerships
High dependence on third-party vendors Technology can be replicated
Competitive Partly or Equality:
Innovative X
Information technology assets X
Temporary Competitive Advantage:
First to introduce to market with this business model X X Unexploited Competitive Advantages:
Potential to sell motorcycles, boats, and small air crafts X X X Potential to sell vehicles from both independent dealers and private sellers X X X Long-Term Sustainable Competitive Advantages:
High equity of the LowMiles brand X X X X
Working with nation-wide dealer groups to develop new distribution systems X X X X
Having large inventories X X X X
Quality customer service X X X X
Selling post-sale services which are sold and distributed by LowMiles X X X X Source: made by the author
46 3.8 Market size and opportunity
According to IBIS (2021) used car industry analysis, the used car industry was worth $141.07 billion in 2019. In 2019, 280 million used cars were in operation which is a 1.6% increase from the previous year and 40.8 million used cars, and 17 million new cars were sold in the United States (Wagner, 2020).
In the United States, the automotive industry is one of the largest in-country. In comparison, used car sales outweigh new car sales due to the higher supply of used cars and their increase in reliability so they can be sold multiple times before being retired.
Down below is a pie graph that shows the total used cars sold in 2020. There were approximately 39.14 million (Wagner, 2021) cars were sold in 2020, more than 35% of the total used cars sold were by franchise dealerships. Franchise dealerships collectively could sell more used cars online than the competition.
Used car sales by new car dealerships grew 14.4 to 14.9 million units from 2018 to 2019. Then in 2020 sales dropped significantly to 13.7 million because of COVID-19. Although sales dropped, the average retail price of used cars sold by new car dealerships grew from $21,094 to $22,027.
Figure 10: Market share of used cars sold in 2020 by units
Source: (Carvana, 2021a; Manzi, 2020; Shift, 2021b; Vroom, 2021a) compiled by author Market size for automotive e-commerce
Table 18: LowMiles market size
Source: (Cox Automotive, 2021; Manzi, 2020) then compiled used by the author
Filter Cars sold
Total used cars sold in 2020 39.4 million
Used cars sold by new car dealerships 13.7 million
2/3 of car buyers will purchase cars from dealerships 100% online 9.042 million Estimating 1/4 of those cars sold are sellable on the LowMiles platform 2.260 million Cars sold bought by existing automotive e-commerce 291,734
Total potential market 2.552 million
35%
0.70%
64%
Franchise dealerships Carvana, Shift, and Vroom
Independent dealers, auctions, and private sellers
47 LowMiles market target
In the next 10 years will be able to grow into the market and be apart of 5% of total sales in the used car retail industry.
Market size estimations for dealerships
There are around 18,195 new car dealerships in the United States in 2020 (Wagner, 2021a).
Down below are the trends for dealerships implementation of online services.
Note: These are estimations are used to represent trends and are not exact Table 19: Franchise dealership trends % of
dealerships
# of
dealerships
Dealerships utilizing online tools 80% 14,556
Dealerships with digital online staff pre-COVID 52% 9,461 Dealerships with digital online staff midst of COVID 66% 12,009 Dealerships without online staff planning on hiring online
staff
20% 1,237
Dealerships which are not satisfied with current online tools 38% 6,914 Source: (Cox Automotive, 2020), compiled by the author
Trends show that dealerships are likely to implement LowMiles as their online selling solution.
Approximately 16,000 dealerships have implemented online selling solutions and are continuing to grow. The growth of dealerships that have digital online staff grew 26% during COVID and 20% of dealerships that do not have digital online staff are planning on hiring digital online staff. This means by the end of 2021; more than 13,000 dealerships will have dedicated people who will help to sell cars online. What this means for LowMiles is that more than 13,000 dealerships will have the needed infrastructure to implement LowMiles.
Down below is a table that has ranged from most likely to implement to least likely. The idea is that dealers who have invested in online solutions and are not satisfied with current solutions are the most likely to use LowMiles.
Table 19: Dealerships interest in using LowMiles
Source: made by the author
Group of dealers Likeliness Range of dealers Distribution Dealerships who are not satisfied with
digital solutions and have an infrastructure
Most likely 0-5,531 30.4%
Dealerships who are satisfied with digital solutions and have needed infrastructure
Likely 5,531-12,009 35.6%
Dealerships who are satisfied with online sales and do not have an infrastructure
Not Likely 12,009-14,556 13.9%
Dealerships who are not using digital solutions
Least likely 16,012-18,195 20%
48
LowMiles is an attractive platform for dealerships to post their cars because we will not charge dealerships for advertising cars on LowMiles. Automotive classified websites charge dealerships monthly fees to post their cars onto the website. These prices vary from the website.
Getting free exposure will help to attract more dealerships.
3.9 Marketing plan Market segmentation
There are many market segments in the used car industry. What these market segments have in common is that they are
Table 20: Market segment similarities
Characteristic Description
Demographic Age: 30-50
Gender: all
Socio economic: middle to upper middle-class
Geographic East coast suburbs which are close to capitals or major cities
Context and situational In a search of a new vehicle, but not in dire need of one.
Source: made by author Family car buyers
Family car buyers are purchasing a car with their family needs in mind. These are typically larger cars with enough space to fit a family and some luggage and is safe or they are purchasing another car for a spouse or offspring. They are more willing to spend more money on a car which meets their needs.
What they want:
▪ Cars that fit the whole family, i.e., SUVs and minivans
▪ Safety features
▪ Entertainment features
▪ Cargo capacity
▪ Ease of cleaning
▪ Rear seating room Status conscious
Prospective car buyers who are status-conscious are looking for a car that reflects their success.
These are typically more expensive cars.
What they want:
▪ Cars which are luxurious and/or sporty
▪ Cars which are not small and compact.
▪ Features
▪ Hybrid or fully electric
49 Quality matters
This group spend the most amount of time comparing prices of competitors and substitutes trying to full maximize their investment into their next car.
What they want:
What they want: