At Carvana, the algorithm is king.
. Chesbrough says the entire industry can currently only make a little more than a million cars per month, and the impact is easy to spot across the United States: there were 1.8 million fewer vehicles on dealer lots in December 2021 than in December 2020 and 2.5 million fewer than in 2019.some dealers are charging a markup
It turns out that the “buying my car sight-unseen” part is actually pretty easy to explain. Carvana’s founding team realized it could never have perfect information — no buyer ever does — yet that doesn’t stop thousands of cars getting sold on the auction block with no test drives and no mechanical inspections either. Somehow, human bidders with relatively little information are still able to come to an agreement on the true price of a car.
According to Carvana’s Tom Taira, who led product at competitor TrueCar for over a decade, the actual quote you’re seeing primarily revolves around three factors: what the car would sell for on the wholesale market today, what Carvana projects it will be worth, and which cars Carvana needs to stock in its inventory. “The miles on it, the accidents on it, the condition that you’ve reported — all of those things are adjustments,” says Taira. But they’re not at the algorithm’s core.
Sometimes, he says, the model makes mistakes, usually when data sources give it the wrong information about a vehicle. “There are cases where you’ve got very difficult cars to verify,” he says. “I’ve never seen a $25,000 error by any stretch of the imagination, but on a monthly basis, there are a handful of $3,000—$5,000 errors that we make because the data’s not correct.”
“Going all the way back to 2015, that certainly would not have been my expectation,” he says, adding that it’s particularly confusing to hear that Carvana paid more for my Fit than other Fits with lower mileage or newer model years.Last Friday, I got Carvana’s final answer. The short version? It’s not a bug — at that moment in time, Carvana’s algorithm believed it could pay me that much and still make a profit.It appears we did make an aggressive offer for your vehicle, but not by much.
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