Having established dominance in the US used car market, Carvana Co. is now making a significant move into new vehicle sales. Since last year, the company has quietly acquired seven new car dealership franchises, primarily selling vehicles from Stellantis's Chrysler, Dodge, Jeep, and Ram brands.
Dealers and industry experts suggest this move will have a profound impact on the industry's structure, even if it doesn't completely overhaul the century-old franchised dealership system. The new car business not only provides a fresh revenue stream for the company but also grants Carvana Co. access to exclusive auctions for used vehicles, which are typically open only to franchised dealers, thereby expanding its inventory sourcing channels.
Based in Tempe, Arizona, Carvana Co. has grown from a company known for its iconic car vending machines into a leading online used car retailer. Its expansion into new vehicles marks a pivotal strategic shift. The first of its Stellantis dealerships, located in Casa Grande, Arizona, has seen explosive growth, reportedly selling over 700 new vehicles last month, transforming it into one of the brand's top-selling outlets in the nation.
Veteran Wall Street analyst and auto industry consultant John Murphy described Carvana Co.'s entry into franchised new car sales as "one of the most disruptive events in US auto retail in decades." The established dealership network, comprising nearly 17,000 stores across the US, has historically resisted change but is now facing new pressures for adaptation.
Strategic Advantages and Business Evolution
The addition of new car sales allows Carvana Co. to tap into the full lifecycle value of a vehicle. Traditional dealerships typically profit from four areas: new car sales, used car sales, parts and service, and finance and insurance. Previously, Carvana Co. was primarily active in used sales and finance. By securing new car franchises, it formally enters the remaining two major profit pools.
Brian Gordon, President of dealer advisory firm Dave Cantin Group, noted that after solidifying its core used car business, Carvana Co. recognized the significant revenue and margin opportunities embedded in the traditional franchise model that its original business did not capture. Furthermore, access to dealer-only auctions could fundamentally alter the dynamics of the used car wholesale market, creating a formidable competitive advantage if replicated with other automakers.
Navigating New Challenges
Despite its market valuation exceeding $70 billion, Carvana Co. faces distinct challenges in new car sales compared to online used vehicle retail. New car sales are heavily regulated by state laws, and franchised dealers are essentially business partners of the automakers. Laws in states like Michigan mandate that new cars be sold through franchised dealers, a point of contention for direct-sales manufacturers like Tesla.
Consumer preferences also present a hurdle. Industry surveys indicate that most car buyers prefer a blended online and in-person experience, not a purely digital transaction. Additionally, franchised dealers must comply with extensive manufacturer rules covering facility standards, brand representation, vehicle allocation, and service operations—areas where Carvana Co.'s current infrastructure is not fully developed.
Stellantis has certified Carvana Co. as an official online platform provider, a status that reportedly allows it to build its own branded online sales channels without a third-party compliance intermediary. This distinguishes its operational model from that of traditional dealers. Some within the Stellantis dealer network view the automaker's collaboration with Carvana Co. as a strategic move to address market share challenges.
Stellantis stated in an official response that Carvana Co. is a corporate-owned dealership, similar to large publicly traded dealer groups like Lithia Motors and AutoNation. The company emphasized that it holds all dealers to the same standards and certifies tools and services that enhance the retail network.
The Future Competitive Landscape
Sean Hogan, Chairman of the Stellantis National Dealer Council, acknowledged that Carvana Co.'s rapid expansion into new cars is a major topic of discussion. He believes competition ultimately benefits consumers but noted many unanswered questions about Carvana Co.'s long-term strategy, particularly regarding who will handle post-sale service and maintenance—a critical revenue and customer retention component.
While Stellantis treats Carvana Co. as a standard dealer partner, its core online-first model, supported by a national network of physical locations for vehicle reconditioning and delivery, sets it apart. The company has built extensive infrastructure akin to Amazon's logistics network for vehicle inspection, preparation, and distribution.
Industry consultant Larry Dominique noted that Carvana Co.'s mature digital, physical, and logistics infrastructure gives it an inherent advantage over traditional multi-brand mega-dealers. The company's other six Stellantis dealerships are located in Sacramento, San Diego, Dallas, Atlanta, Cleveland, and Boston, adding to its existing network of over 100 US locations.
A key industry question is whether Carvana Co. will eventually build its own service centers. Analyst John Murphy speculated that the physical locations from the ADESA auction business it acquired in 2022 could potentially be integrated with its new dealerships to create a proprietary service network. With an annual vehicle reconditioning capacity of 1.5 million units—far exceeding its current sales volume—Carvana Co. possesses the scale to potentially develop a large-scale service operation, an advantage most large automotive consolidators lack.
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