CARY, N.C. -

Editor's Note: This is story is part of our upcoming Leading Dealer Groups print edition of Auto Remarketing. This early look at that content is being offered to CMG Premium subscribers. The Leading Dealers Groups print edition of AR will be released in July. 

Like many companies in the retail auto space, CarLotz had a strong start to 2020 and had big expectations for an “absolute blowout month” in March, which is typically a vibrant one for the car business, in general.

Then the COVID-19 pandemic hit, leveling a blow to entire industries, including retail and wholesale auto, the two segments in which CarLotz operates.

“Man, it was very scary for several weeks,” co-founder and chief executive officer Michael Bor said in a June interview for the Auto Remarketing Podcast.

“Fortunately, on the retail side of this industry, it was actually a pretty quick and intense disruption … and we emerged from it very quickly, but we didn’t know that going in,” he said.

CarLotz, which sells vehicle consignment from consumers and commercial accounts to retail customers at its eight locations across five states, had to make some tough calls and business model adjustments to adapt to COVID-19.

In the early stages of the pandemic, CarLotz had a small round of layoffs and “massive” furloughs, Bor said. Their team went from approximately 160 to 30. Stores has just one or two people to maintain the safety of inventory. Management kept in touch with teammates on a weekly or even daily basis through townhalls.

(Most of the furloughed team members have returned. CarLotz anticipates having them all back by mid-July)

CarLotz also made a digital shift, leaning on its tech team, which remained entirely intact.

“We really pointed them towards getting us to this next level of automation, online selling and buying, paperless, touchless (processes) — everything that at the end of this, might end up being just a gimmick, but it’s actually great for the consumer,” Bor said.

“So, in very short order, we went from being a traditional car dealer with obviously a different model, where we’re consignment, to essentially we have the ability for you to buy a car from our store without ever talking to us, online without ever signing a document,” Bor said. “It’s all touchless, paperless, online. 

“That happened very quickly. We were making strides. We started that strategy last November. And so, we kind of lucked out that it was ready to go right around the time COVID hit,” he said.

While consumers have the ability to have vehicles from CarLotz delivered to their home via online purchasing, “not as many people use it as you’d think,” with folks still preferring to come to the dealership.

“And our thought there is that we really want to meet the car buyer where they want to be in terms of how they want to transact for a vehicle,” Bor said.

“Carvana and Vroom have done an awesome job of selling a tremendous number of vehicles online. But the reason that 100% of their deals is because there’s no other option. With us, you can buy a car 100% online, but you also have the option of coming in and looking at it. And we think that hybrid model gives the car-buyer the ability to meet us where they’d like to be met.”

While CarLotz might ship the occasional car to Maine (where it does not have a location), for example, that’s the exception rather than the rule, with most of its transactions being in-person.

“Although people kind of jump on and off the online train wherever they feel comfortable,” Bor said.

Recoveries vary

Much like wide array in pandemic impacts in individual states, the recovery for CarLotz has varied by the five states in which it operates: Florida, Illinois, North Carolina, Virginia and Texas, Bor said.

Company-wide, CarLotz is “ahead of where we were last June, which is great,” but within those specific markets, they might be behind 30% or significantly ahead.

“There’s been kind of this drop-off and bounce-back at different rates, depending on what market we’re in,” Bor said.

The activity from a consignment perspective also varied. At first, consumer consignment shut down, with many not finding selling their car an essential activity, Bor said.

But on the commercial consignment side, with much of the wholesale auto industry shutting down at the outset of the pandemic, CarLotz saw a “huge boom.”

While auto auctions have since opened back up and prices have been bouncing back, the wholesale auto business had been seeing sell-through rates, vehicle values and wholesale indices decline, “whereas retail pricing really only ticked down a very small single digit percentage,” Bor said.

“Volumes came down for a three- or four-week period, about 60-70% but bounced back up immediately, and as I said, we’re ahead of where we were last year, where pricing didn’t really move,” he said.

The value proposition that CarLotz offers is selling consignors’ vehicles at retail prices. Typically, the “lift” CarLotz is able to get over an auction price is $800 to $1,200, Bor said.

But with wholesale prices falling and retail prices remaining relatively steady, that lift increased to $3,000 to $5,000, Bor said.

“A lot of our accounts that were feeling very stressed because these auctions were shut down or not selling the volumes that they would, they started shifting volume towards us and we were getting tremendous results … It’s kind of glass-half-full, I guess, on this side of it. Our ability to service our commercial accounts was fantastic through this process and they achieved great results, and we’re still seeing that,” Bor said.

CarLotz is also seeing consumer consignment come back in a big way, as comfort levels increase and states begin to open back up. Commercial consignment also helps give CarLotz wider variety in its inventory, as those cars tend to reflect what consumers in the area are driving, Bor said.

What’s on the radar?

Looking forward, Bor said the company is closely watching the wholesale market and is taking a consultative, advisory approach with its clients.

“We think volumes are going to be coming up — consignment volumes to us and to the auction are going to be popping soon. Several of our big accounts, volumes have slowed a little bit because they’re not able to get their accounts into new cars because OEMs were shut down for a while,” he said.

“We feel like there’s a little bit of a backup there, where we’re going to see dramatically increased volumes as the OEMs re-opened and start producing cars again. That is the first step in the supply chain that will allow us to grow inventory,” Bor said. “We think all of our stores will be much, much busier. We’re seeing very strong consumer demand for vehicles, which is great.”

Footprint expansion is also a goal. Bor said he would like to see CarLotz expand to the West, potentially to markets like Denver, Las Vegas or Phoenix, and to the Northeast in markets like New England or the Pennsylvania-New Jersey area.

“We’re very excited about the growth we’ve seen through all this,” Bor said. “I don’t think I’d ever choose to go through this (pandemic), but now being on the other side of it, I recognize the positive qualities that it had on forcing us to be more efficient and more diligent and it’s really kind of created a stronger company.

 “We’re very excited to take that forward and continue to grow it.”