In this articleCVNASTLASTLAFollow your favorite stocksCREATE FREE ACCOUNTA Carvana sign and signature vending machine in Tempe, Arizona.Michael Wayland | CNBCAfter growing to become one of the largest used car retailers in the U.S., Carvana is expanding into the new vehicle market.The company has quietly purchased seven new vehicle franchises since last year that primarily sell Stellantis’ Chrysler, Dodge, Jeep and Ram brands, including a location in Arizona that has become the automaker’s largest volume store in the U.S.Dealers and industry experts said they believe the move could significantly disrupt, if not reshape, the century-old new vehicle franchised dealer system.”Carvana entering the new vehicle franchise business may be one of the most disruptive forces that auto retailing has seen in the U.S. market in decades,” John Murphy, a longtime Wall Street analyst and automotive consultant, told CNBC.The U.S. franchised dealership system — which includes 16,990 retailers that topped $1.3 trillion in sales last year, according to the National Automobile Dealers Association — has historically been reluctant to change. However, dealers have grown more adaptable in recent years as a means of survival, including during the pandemic and with the rise of publicly traded dealership groups.Carvana’s first new car dealership for Stellantis in Casa Grande, Arizona, has grown quickly. It sold more than 700 new vehicles last month, according to Stellantis figures shared with dealers and provided to CNBC.That made it the bestselling store nationally and compares with an average of roughly 30 to 50 monthly sales the store was doing before Carvana purchasing it early last year, as first reported by The Wall Street Journal.Carvana and its CEO, Ernie Garcia, have declined to comment about the franchised stores or details of the businesses ahead of a media event this week at which the retailer is expected to disclose its plans.Carvana: From vending machines to online used car leaderCarvana’s locations, many of which feature its signature large car vending machines, have historically acted as delivery and drop-off points where customers can pick up vehicles they purchased online or turn in a vehicle they sell to the company. And up until last year, those vehicles had been used cars, trucks and SUVs that were largely bought from auctions and individual consumers.Adding the new vehicle business not only provides additional revenue for the company, it opens up other avenues for Carvana to more easily purchase used vehicles from their new vehicle customers and through exclusive auctions only open to franchised dealers.”That is a significant game changer in the secondary market,” Murphy said regarding the private auctions. “If that expands to other brands, that is going to be an advantage.”Hollywood, Florida, Carvana car dealership, automated car vending machine building selling used cars, delivery truck. Jeff Greenberg | Universal Images Group | Getty ImagesIt also helps Carvana better capitalize on the complete lifecycle of a vehicle. The dealership model is comprised of four main areas of growth: new, used, parts and service, and finance and insurance.Carvana has previously covered used sales and F&I, including selling consumer auto loans it originates to institutional investors and partner banks, such as Ally Financial, to maintain liquidity. Adding the new franchises is expected to bring Carvana into the other areas as well. “After stabilizing their core business, I think they realized, by looking at the franchise model, that there was a significant amount of revenue and gross profit opportunity that their business model didn’t even contemplate,” said Brian Gordon, president of dealer advisor and broker Dave Cantin Group.Dealers adapt or ‘be irrelevant’ Despite Carvana’s current status, which includes a market cap of more than $70 billion, significantly higher than that of Stellantis, there are challenges to selling new cars compared with used. Unlike used vehicles, which Carvana has specialized in selling online, the sales of new vehicles are more regulated state by state. The franchised owners also act as a business partner to most automakers operating in the U.S.In some states, such as Michigan, the only way to legally purchase a new vehicle is through a franchised dealer — something direct-to-consumer companies such as Tesla and Rivian have battled with varying results.An annual study by Cox Automotive, which supports fra …
