There was so much discussion about CarLotz that public through Acamar SPAC not too long ago. At a brief glance, they seem to be very similar to Carvana ($CVNA) or even slowly dying Vroom ($VRM) so tons of folks on WSB talked about them. And $LOTZ trading below $4, it looks like it’s an attractive stock to own but again, you need to do a DD and once you do, you will feel the same way about their future as I do.
So let’s begin. Who is Carlotz? Rather than copying and pasting from some website, let me tell you what I heard directly from their CEO. Yes, from their CEO? How? I apply for jobs to learn more about the company and I had a chance to talk to him.
CarLotz is a consignment company. “Most of our revenue comes from consignment and very little from individual sellers”. That’s exactly what he said. So what the hell is consignment?
Not sure how many readers have done this in the past but have you ever wanted to sell something on eBay? But you don’t know how to do it? And you ask your friend who is really good with writing descriptions, taking good photos and can sell anything so well? And you ask for a favor or buy your friend a drink after it gets sold? Yes, that’s consignment. You pay someone to sell your merchandize.
So for example, when I return a car that I leased. Dealer doesn’t keep it. It doesn’t belong to them. It belongs to whoever financed my car. And they give the dealer an option to buy it or they will auction it off. When there were so many cars flooding the market, you don’t get much money at an auction so it’s better to consign them to a company like CarLotz so they can get more money. But here is a downside of consignment. These companies have to pay money up front to CarLotz to clean and fix few things. $199 to inspect the vehicle, clean and run some diagnostics. And another $100-$120 to detail it and things can add up. Of course, a percentage of final sales price is also going to CarLotz. But when there is a shortage of cars, would you really want to spend this money when dealers are running out of cars to sell? The answer is no. That’s why they have lost a big customer. And I believe they will continue to lose more.
And to make things worse, do people buy cars from CarLotz? Look at their website. Yes, really old cars. At least Vroom ($VRM) CEO is determined to get high-end and low-mileage cars so they can create a good brand reputation. CarLotz inventory is mostly junk.
Also, how they are treating job candidates (as you might see from Cootbie), I wouldn’t be surprised if the concept of CX doesn’t exist there either.
So to summarize all this
- CarLotz is not even remotely similar to Vroom or Carvana
- CarLotz is a consignment company
- When used cars are selling like hotcakes, it doesn’t make sense for companies to pay any upfront money to sell (a losing value proposition)
- CarLotz’s business model will not thrive until the chip shortage ends AND we flood the market with too many used cars (which might not happen anytime soon)
- CarLotz needs better inventory if they want to be successful
- CarLotz needs to work on CX
Conclusion: Avoid CarLotz until you see a sign that the used car market is starting to face an over-supply of cars. Again, before you make any investment decisions, do your own DD.
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