CarGurus Jumps Into Wholesale With Stake In CarOffer

Online auto marketplace CarGurus.com made a major push into wholesale vehicle sales Thursday, announcing an agreement to purchase a 51% stake in CarOffer, a web-based wholesale trade platform. Under the agreement, CarGurus, based in Cambridge, Mass., will have the option to buy the remaining equity in CarOffer over the next three years.

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The move is significant as rising transaction prices of new vehicles have put them out of reach for many consumers who have turned, instead, to used car lots. That’s put pressure on dealers to add inventory and compete at wholesale auctions for the highest quality and most attractive brands, styles and body segments. Indeed, as of November, the average transaction price for a new vehicle climbed 1.3% over a year ago to $39,259 according to Kelley Blue Book. 

Traditionally, late model wholesale vehicles are acquired by dealers through auctions. Before the Covid-19 pandemic took hold, many dealers attended the auctions in person to examine and bid on vehicles, although the ability to attend remotely online has become a more cost-effective and convenient option. Due to health concerns, auctions now are almost exclusively held online. 

However CarOffer doesn’t operate via auction, but rather through its platform it calls Buying Matrix. 

“Buying Matrix enables any dealer to buy and sell vehicles wholesale by aggregating buyer interest and matching them with seller interest of thousands of dealers across the country without the burden of timed auction,” said CarGurus president and COO Sam Zales on a webcast with financial analysts.  

Essentially Buying Matrix automatically matches the buy orders to vehicle inventory, allowing sellers to accept an offer and check out.

While the companies wouldn’t disclose the deal’s full financial details, on the webcast CarGurus chief financial officer Jason Trevisan put the “enterprise valuation” of its 51% stake in CarOffer at $257 million—half stock, half balance sheet cash. CarGurus will retain the ability to buy up to an additional 25% of CarOffer in the second half of 2022 and the remaining equity in the second half of 2024. 

Confidence in the financial sense of the deal comes from both CarOffer’s rapid growth as well as the revenue potential in the wholesale vehicle market. 

Since CarOffer signed its first rooftop in 2019, as of the end of November that number has grown to more than 2,000 said Trevisan. For the big picture, he estimated, “automotive wholesale total addressable revenue opportunity between $7-8 billion annually.”

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Bruce Thompson, CarOffer’s founder, said the relationship with CarGurus will help accelerate his company’s growth. 

“We’ve seen rapid adoption of the platform since our launch, and with CarGurus’ investment and dealer reach, we can accelerate that pace and volume to reach even more dealers,” said Thompson in a release. “The synergies we will create with CarGurus’ market data and pricing engine will enable us to provide tools and sourcing capabilities dealers desperately need.” 

The deal is expected to close next month pending the usual regulatory approvals and other details, after which CarOffer will operate independently under its current leadership and continue to be based at its headquarters in Plano near Dallas.

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