Why Ally’s move with Carvana is continuing push of online sales


The recent move by Ally Financial to commit $600 million in financing to online retailer Carvana didn’t surprise Autotrader senior analyst Michelle Krebs when asked about the demand for more online capabilities to complete as much of the vehicle delivery as possible online.

“I will say that study after study we do with Autotrader and Kelley Blue Book show that especially younger car shoppers just can’t understand why they can’t do that part of the transaction online, or at least the application, and don’t have to do it again once they get to the dealership. I do think we’re going to see more activity in that regard,” Krebs said during a conference call with the media on the same day Ally and Carvana made their announcement.

Nearly a year after doubling the floor plan credit line for online retailer Carvana, Ally Financial announced a new agreement with the company on Jan. 4 where the finance company will make up to $600 million available to Carvana during the next 12 months through financing and bulk purchases of contracts.

On the same call, Kelley Blue Book senior analyst Alec Gutierrez added, “I think we’re very close to bring more of the transaction completely online, especially from a finance perspective. People can get prequalified and understand what kinds of programs are available as a buyer before you walk into the dealership. That is a high friction point in the process that is actively being worked on to be mitigated by a number of players, us included.”

“There is a ton of research around how buyers are more and more willing to buying their vehicle online,” Gutierrez continued.

Tim Russi, president of auto finance at Ally, explained the agreement is another example of the company’s commitment to the online channel and will help support Carvana’s growing origination volume, while helping the company maintain a seamless and transparent financing experience for its customers.

“We are very pleased to be expanding our relationship with Carvana, and continuing to develop innovative financing solutions that help businesses succeed in the online channel,” Russi said in a news release.

“As the industry evolves, Ally is committed to providing products and services for new business models in the online channel, and also to applying key technology and learnings to help our dealers improve the ease and efficiency of their financing transactions with customers,” he continued.

Under the terms of the agreement, Ally will provide financial arrangements to support Carvana’s retail operations, with an initial commitment of up to $600 million. The agreement expands Ally’s existing relationship with Carvana, which also includes a floor plan credit line and vehicle sourcing through Ally’s SmartAuction platform.

Last February, Ally increased the online retailer’s floor plan credit line from $60 million to $125 million. Executives calculated the increase represented financing for approximately 7,100 vehicles, up from 3,400 vehicles.

Gutierrez explained the additional challenge companies such as Carvana have when trying to turn used metal through a transaction completely online.

“I think there is a difference when you’re talking a new car versus a used car,” Gutierrez began. “If you take the finance process out of it since prequalification is going to move online quickly, but as far as willingness to buy sight unseen, new is a much easier equation. I can walk into any dealership, have a test drive, pick the one I want and work the deal online.

“With a used car, every VIN and each specific unit is bit of a unicorn in the sense that it has its own story and history. I think consumers benefit a lot more from actually test driving that unit,” he continued.

“But with that said, as the inspection process is made more consistent across the industry and consumers can better understand the condition of the vehicle online, even with just high-quality photos, it’s can be advantageous for the consumer where I think more and more sales can happen online in the years to come,” Gutierrez went on to say.

“I think 2017 will be a year where we see a number of players pushing in that space aggressively, which already has been happening for the past several years,” he added.

Carvana founder and chief executive officer Ernie Garcia elaborated about what the announcement with Ally means.

“The agreement with Ally will provide Carvana reliable and consistent financing to support both our origination growth and future expansion plans,” Garcia said in the release.

“As we look to enter new cities, this relationship will help us to easily accommodate more volume, while maintaining the seamless customer experience that we are known for,” he added.

Carvana is known for its unique, customer-driven experience, which lets customers control much of the vehicle purchase process, including choosing their financing terms and monthly payments. Ally’s commitment will allow Carvana to maintain a frictionless, transparent customer experience and will help to facilitate Carvana's growth.

With plans to expand to additional states over the next few years, Carvana already offers as-soon-as next-day delivery to residents in 21 markets.

And the two companies might not be finished as Ally and Carvana said they are also exploring other opportunities to expand the relationship.

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