What Shift’s acquisition of Fair says about the online used car market – TechCrunch

Used car e-commerce platform Shift has acquired some technology from competitor Fair Technologies, enabling Shift to become the Amazon of the used car marketplace, a platform that displays listings of third-party dealerships alongside the company’s own inventory.

The deal is a nod to the direction the online car market is taking, where even selling used cars will require a smooth, first-class user experience. Rising inflation and a supply chain that was already strained by the pandemic and will now suffer more due to Russia’s war in Ukraine has resulted in lower new car purchases, meaning less used cars hit the market.

Demand for vehicles, however, did not decline, causing used car prices to soar. From 2020 to 2021, prices on Shift’s platform have increased nearly 40%, from around $16,400 to an average selling price of nearly $23,000, according to George Arison, co-founder and CEO of Shift. Shift. More generally, year-on-year, used car prices have increased by nearly 33%, according to data from Car Gurus.

“In the first quarter, we start to see retail inventory prices start to depreciate as they normally would, so we assume that 2022 will be more like 2019 in terms of normal depreciation patterns, but we don’t expect that. prices go up. where they were in 2019,” Arison told TechCrunch, noting that the average sale price increase for cars from 2021 to 2022 so far is only 17.5%, but these vehicles have in average a year or two longer than previous years. “Which is really difficult because people who thought they could afford a car for $450 a month are now being told to buy that same car for $600 a month. On top of that, you have a rate of higher interest because interest rates are rising.

The result is that the average consumer is more savvy than ever and hungry for a site that can help them find the best deal at the best price and with plenty of flexibility. Companies that don’t master UX will not survive as the industry consolidates and responds to these consumer demands. According to a new study from Qualtrics, the average expected revenue loss due to poor digital experiences in the automotive industry can be as high as 18%, which also found that reducing the effort required to complete an online task can lead to a 23% increase in expenses. .

This is what makes Shift’s purchase of technology from Fair so powerful.

Fair, who had a tumultuous past marked by failed attempts to market car leasing and subscriptions, has spent the past 18 months building what amounts to a fintech platform, a platform that allows customers to buy cars from a variety of sources from the comfort of their homes; plan test drives, execution and delivery; manage exchanges; buy insurance; buy or finance a car; and buy “everything you could want to attach to an automotive transaction,” said Fair CEO Brad Stewart.

Dealerships can also take advantage of this technology, as they “can manage the entire transaction through a proprietary digital onboarding platform and then easily schedule a door-to-door delivery,” according to Letter to Shift shareholders for the fourth quarter and fiscal year 2021who notes that the platform can help dealers not only participate in e-commerce, but also increase their market share.

“That arc of self-service, being able to shop from the couch, getting it in two minutes, built-in transaction capabilities that come with a brand promise – has Shift got it all? I think strategically they do,” Stewart told TechCrunch. “Ultimately, today’s self-service needs to continue to be refined and improved in ways that allow you or me to to access the site and make transactions rather than picking up the phone to ask for help, which we are still seeing quite a bit.”

Stewart said he could imagine a world where all pricing options would eventually be included, such as subscriptions and rental, two ventures that ultimately led to Fair’s demise as the startup realized it wasn’t. not scalable and was not suitable for the product market. On the one hand, leases or subscriptions could lead to an additional $25 per month, for example, compared to financing a vehicle. While these options offer many service, maintenance, and trade-in benefits, in today’s economy, customers are less likely to increase their spending even slightly.

At the same time, that extra $25 per month was not enough to cover the cost of operations on Fair’s side, which meant the business was operating in a very inefficient and unprofitable way. So unprofitable, in fact, that despite its winning new product feature, Fair was essentially forced to sell its most valuable asset after spending much of its huge sums of money: the company had raised a total of 2 .1 billion over 13 rounds, the last of which was in 2019.

Now, without having to shell out any money upfront, Shift is leveraging the benefits of Fair’s technology and dealer relationships to lay the foundation for the future of automotive shopping. In a transaction expected to close in the second quarter, Shift will purchase Fair’s assets for $15 million in cash and a number of Class A common shares equal to 2.5% of outstanding shares of Shift. At the current share price, that equates to approximately $44.8 million, but the actual number will depend on Shift’s share price on the date the deal closes.

The purchase will be fully financed by SoftBank Group, which agreed to loan Shift $20 million to be repaid by 2025, an attempt to recoup some of its losses. SoftBank Vision Fund has invested $385 million in Fair’s Series B, and SoftBank itself, along with Mizuho Corporate Bank, provided the company with $500 million in debt financing in 2019. Fair’s debt has been owned by the SoftBank Group since December 2020, Stewart said .

While Fair’s dealer market team will join Shift, Stewart is unlikely to follow and instead intends to take some time to think about his next move, the executive told TechCrunch. Fair’s other assets – its legacy fleet and consumer account business – are being sold privately to a financial buyer. The proceeds will go into the company’s cash reserves, which will be used to pay down debt, according to Stewart.

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