Cliff Sosin
speaker
323 appearances
1 recordings
1 series
first heard Apr 2025
last heard Apr 2025
Cliff Sosin’s voice in public audio — every appearance, attributed to the second.
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Appearances
There's also a lot of technology to it, recruiting drivers, there's a lot. But that's the next piece of the system. With that, come to an IRC. And at that IRC, it'll get reconditioned. And reconditioning a car in an IRC is a challenging thing. Which dents do you repair? How do you repair it? And you can think about a reconditioning center
has a bunch of different stations that do a bunch of different work that's relatively homogeneous. So changing tires, changing oil, inspecting, paintless dent repair, painting, whatever the thing may be. A car starts out with a mix of work that has to be done to it. That has to be ascertained in an inspection. And then the car is going to be routed
through the IRC to different stations, and then come out and be imaged and put on the website. Some time later, it sells. They take the car, nine-car hauler, to the hub. Now, you'll see this is beautifully balanced. The cars are coming back from the hub. They're also going out to the hub, right? So the car will go from the IRC it's at to the IRC closest to the customer along basically the rails.
And then it will go from the IRC to the hub. And then from the hub, it'll be delivered on the single car hauler or picked up by the consumer. That's the physical system. There's also finance. If you go on their site and you enter your information, instead of searching by price, you can search every car by payment. So you can adjust the number of the months, your down payment.
And you can see each payment for each car to the penny based on your individual credit score. And this isn't an estimate. This is exactly what it is. In order to do this, Carvana has a fully vertically integrated financing stack. So they're essentially underwriting you for every loan combination for every car in real time.
And then they're taking that and they're making it available to you through this cool widget. To this day, as far as I'm aware, no one's replicated this capability. In order to do it, you need to be vertically integrated into prime lending, subprime lending. It just turns out that no one else is, and it's also very hard to get into these businesses as well. There's title and registration.
Obviously, you've got customer service. The thing about this business, you have to remember that, like, this is all great, but things go wrong. Then you have to deal with, like, all the many, many corner cases that can come up. If you want to entertain yourself, like, go read the one-star reviews at Carvan.
It's like, well, I was moving, and I ordered the car when I lived in Florida, but I needed it delivered to North Carolina. And, you know, then, like, there was a hurricane, and as a consequence, it was late. But then, like, there was a problem with the title, and you're like, oh, my God. Yeah. That's kind of how the system works.
Now, in that whole system, like, let's identify some economies of, like, scale. Inventory. Turns out selection matters. Matters a lot. And there's, if you think about all the makes, models, trims, years of cars, as well as mileage, like, the selection space is massive. And Carvana's coverage, even at its size, is still relatively small.
And so, as a consequence, conversions go up as selection goes up. And so, selection is, like, big economy scale.
Yeah. Logistics. The cost of running a logistics system, you know, you can think about moving these trucks as like a fixed cost. And if you want to provide complete connectivity and move cars quickly, it turns out conversion speeds matter a lot. And by the way, when you think about the inventory space, inventory nearer to customers increases conversion because you can get to them faster.
Then you can think about these IRCs. These are very large facilities. It turns out that run well, you can recondition cars for a lot less money and time because cars are depreciating assets if you have like a big facility. So like if I have a traditional dealership, the car comes in and like one guy or gal does all the repairs.
But the problem is that person isn't necessarily the right level of, like they're overqualified for a lot of the things they're going to do on the car. And they have to change tasks. And that slows you down. If you're at Carvana, you can have people who are very entry level to do the cleaning and the oil changes and the tire changes.
And you can have advanced mechanics do just like a very narrow subset of stuff. And you can have people at like specialized stations where like this is what they're doing. And so they can be more efficient. Now to do that, though, you have to efficiently route the cars through the system and all the rest. Also, the dealership is in an expensive place, and so you have less overhead.
So these are just examples of places, but there's economies of scale to doing that, as well as enormous process power, like economies of scale. Underwriting loans is obviously an endeavor where you learn The way to do this over time, you connect all these data sources, you learn how to predict defaults, you then get data over years that cycles back into it.
Title and registration, like there's software that's built to run all this. So this is like there's enormous economies of scale and skill in terms of like being able to do all these things. And then, you know, I... would be really remiss if I didn't mention trust. Consumers, when they buy a car, it's an active, a sight unseen in the air, it's active trust. We can talk about how Carvana grows.
And it was one of the things that kind of went wrong in 2022, but like getting Carvana is able to get people to buy cars because there's been an enormous amount of word of mouth built up over many years of delivering great experiences. And You know, you can't buy that. You have to build it up over time. That's trust on the buying side. There's also trust on the selling side, although less.
There's also trust in the financing business, right? You make these loans, then you sell them. And the people who buy these loans have to trust that you're making these loans to spec and that the loans are going to perform kind of as advertised. You're a great originator, yeah. Subject to economic conditions. The other thing about this business is if you think about a car transaction, it's a...
It's a whole series of things that have to go right. And if you get any one of them wrong, you're going to lose money on the transaction and your customers are miserable. And this is economies of scope, right? This is the idea that you have to put this whole portfolio of things together and you have to get them all right, and you have to get them all right every time.
And this is this combination of things. And if anything I've said sounds easy, it's because I haven't described it right. It's so hard. That's why everyone who's tried to build this business besides Carvana has failed, and that's why it's taken Carvana over 10 years and $10 billion to get where it is. Outside the US, there were other people trying to copy Carvana in other markets.
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