When purchasing a used car, buyers most often search for prices under $5,000. But many have a hard time finding cars in this price range that meet their satisfactions.
One San Francisco company has made use of this demand. Shift, a two-year-old startup, is getting an edge on its competition by obtaining certified pre-owned vehicles from the auto rental company Hertz.
“It gives us a huge advantage in launching new markets, in a very scalable way at reduced cost,” said CEO George Arison. “We can just focus on [attracting] buyers while getting cars from Hertz to sell.”
Shift operates on a consignment model, much like a failed startup, Beepi, which attempted to create a peer-to-peer online marketplace. The model failed, forcing Beepi to lay off 180 employees.
What sets Shift apart from the rest is that the company is not peer-to-peer. They are a reseller that acts as the middleman between used car sellers and buyers. Another unique feature of the Shift business model is that the company employs valets, which they call “enthusiasts,” willing to deliver the car to the consumer before purchasing, and allow the buyer to check out the vehicle and test drive it with no obligation of purchase.
The amount of money that these cars sell for vary, but Shift’s services pay out on both ends. The company hopes to make about 8% from each seller as well as collect a 3.75% service fee from the buyer.
When buying used cars, many consumers are most concerned that they cannot negotiate prices or take a test drive, and are sometimes uncertain about the vehicle’s condition. Tony Wasserman, a software management professor at Carnegie Melon Silicon Valley and former vice president of engineering for BestOffer.com, says that Shift has developed a way to address those problems and integrate solutions into its business model.
“Those features help to account for their success to date,” said Wasserman. “They have also addressed a pain point for the rental car companies, which now have an alternative place to sell their used cars.”
While Shift has big dreams when it comes to selling former rental vehicles, like those from Hertz, the inventory is simply far too much to handle.
Out of its 500,000-vehicle fleet, Hertz turns 200,000 cars over every year to customers directly as well as to auctioneers.
Selling directly to consumers makes far more money, which is what Hertz is interested in and what makes Shift such an appealing partner. But the startup currently only has about 1,000 vehicles in its inventory between its three markets in the Bay area, greater LA, and the D.C. metropolitan area.
“That would definitely swamp us,” said Arison. “If we can sell a couple of hundred [Hertz] cars per market per month, that would be an awesome outcome for us.”