An Admirable Attempt to Disrupt the Used Car Business

Spotted in a Palo Alto parking lot.

Spotted in a Palo Alto parking lot.

Today’s post was inspired by a spot of guerrilla marketing in downtown Palo Alto. There’s no denying that parking lots are good place to look for car owners and maybe find some looking for a different way to sell their car.

I’m not surprised there are new start-ups trying to solve the used-car problem. The space is full of less-than-honest dealers who prey on sellers and buyers who have little or no experience in car buying. Each car is unique and buyers are afraid of paying too much, especially of the car’s mechanical condition is not exactly as advertised by the seller.

Like many of the problems addressed by the new crop of disruptive apps, it is a question of information. When buying a new car, it’s easy to compare models across manufacturers. All cars are new, all cars are in excellent mechanical shape, have never been involved in an accident, have never had their odometer reset, their engine replaced or their interior covered by dog hair (or worse.) They also come with the manufacturer’s warranty, usually for a few years after purchase, so that the risk is reduced. Cars are identical across dealers and buyers can pick and choose what they want and go haggle with a dealer. It’s not a happy process but the pricing information (such as dealer invoice and MSRP) is well known and widely available to both parties.

With used cars the lack of information is a huge problem. Car owners know what they are selling. They know the history of their car, they know how well (or not) they took care of it, what kind of off-road trails its been on, and what mechanical and cosmetic state it is in.

Car value estimators, such as Kelly Blue Book, don’t know the real history of a car, but they make generic estimates and end up with a price that satisfies neither side. The seller because they know more about the car and feel that the price is too low given the car’s condition, and the buyer because they know nothing

That’s the essence of the problem: information. Sellers end up selling the car for lower than they expected and buyers end up buying for higher than they expected. That gap is extremely attractive to car dealers.

Beepi tries to solve this problem by being the middle-man instead of the traditional dealer. By taking the car through a lengthy inspection they hope to provide the information that can help make a sale. Several start-ups have tried this before, Autotrader, Cars.com and eBay Motors, just to name a few, and all have tried using the “we’ll inspect it for you” model. Beepi also wants to sell the car for you, and save sellers the hassle of showing it. It also offers a three-month warranty, hoping to soothe buyers’ worries.

All this is good, and certainly better than whatever options are out there today, but it isn’t quite the peer-to-peer marketplace that Beepi wants it to be. To be that, Beepi has to offer both buyers and sellers more tools to facilitate the sale. The seller needs to provide more information up front, everything that they possibly can including maintenance records, insurance records, tire receipts, etc. and have that information be vetted and be part of the selling package.

Also, can the process be somehow tied to the community? I’ve noticed that certain communities, such as coworkers and neighbors, have an easier time trusting each other with car purchases. Can Beepi somehow integrate that proximity into their sales process?

But Beepi is on the right track: by reducing the risk for the buyer, the seller can get a higher price and everyone profits. Solving a pain point everyone who has ever bought or sold a used car feels is certainly a great starting point for a start-up. Carry on.

 

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