Can Tech Make Buying a Used Car Less Sketchy?

When you think of a used car salesman, George Arison might be the last person who comes to mind. A gregarious entrepreneur with a soft face and a big smile, he has a quality that immediately puts you at ease.

Yet the former Googler who grew up in the Soviet Union does indeed find himself in the stigmatized business of selling used cars. His two-year-old startup Shift, an online used car marketplace, sells nearly 350 cars a month across six markets and has become the single biggest used car seller in San Francisco.

With this success in mind, I was surprised by his willingness to talk openly about his industry.

“When you want to say that someone is an jerk, you say they are behaving like a used car salesman,” he said bluntly when we sat down for an interview at Shift’s headquarters in the outskirts of San Francisco. “That perception is totally correct.”

If you’ve ever tried to buy a used car, you don’t need Arison to explain how frustrating the process can be. It’s hard to trust salesmen working at dealerships off commission to give you a fair offer, and there is little transparency into the actual quality of the car you want to drive off the lot.

That’s why he created Shift in the first place: He thinks his online marketplace can take the sketchiness out of buying a used car completely.

“We have very few people working for us who are from the traditional car industry,” he said. “We have a very tech-heavy team. That is where we have our advantage.”

With a model that focuses on transparency and convenience, Arison aims to take a sizable bite out of the $750 billion U.S. used car market. Rather than put the onus on the buyer or seller to come to a dealership, Shift sends a car “enthusiast” -- not a salesman -- to you to take you on a test drive or to pick up your vehicle. From there, Shift takes care of everything from listing your car online to matching it to the appropriate buyer. Today, the startup announced it is taking that end-to-end process even further by offering in-house car loans to customers as well. The pilot program will start in Virginia before expanding into other markets later this year.

The first peer-to-peer marketplace to offer direct-to-consumer auto loans, Shift’s plan is to leverage the data they know about their customers to offer a cheaper loan with lower risk to its customers. When a bank issues a car loan, it is relying solely on the limited information the dealer gives them about the car and the owner to assess the risk. By assessing things like where a customer lives, what types of cars they are browsing as well as the quality of the car they are putting up for collateral, Shift believes it is at a competitive advantage in the car-lending market.

Shift certainly isn’t the first startup to use data to offer more competitive loans. Earnest, a tech-driven personal- and student-loan lender, similarly leverages inputs other than a customer’s FICO score to assess the risk on a loan. When I asked Arison why he is getting into the loan business as well, he says it all goes back to increasing revenues without increasing the cost of the actual cars. Nearly 90% of used cars purchased at dealerships are financed, yet only 10% of private-party sales include a loan. This disconnect is a clear sign to the founder that he can increase his revenue without taking away money from either the seller or the buyer.

While Shift declined to share revenue or unit sales, a spokesperson said they are growing 20 percent month over month.

“Shift buyers pay roughly $2,000 less on our site than when they buy through traditional dealers,” he said “As a startup, we can make less revenue than we want in the future, but eventually we need to make more money.”

Whether or not Shift will succeed in growing revenue will depend largely on the startup’s ability to scale the business in a depressed funding environment. After recently expanding into the D.C. market, Arison admits that the business itself has scaled much faster than what his engineering team can support. Now he is in a competitive race for engineers at a time when tech talent is being more careful than ever on where they decide to work. Arison also has faced some pushback from investors who are bullish on the notion that car ownership is going way completely.

Yet both the war on talent and the war on car ownership seem not to faze Arison. With that same warm smile he greeted me with when we first met, he tells me that he is confident Shift will continue to deliver a car buying and selling experience that will keep his company ahead, even through a downturn.

“The whole idea is to be counter the industry and offer a much better experience for the seller and the buyer,” he said. “A lot of the marketplace businesses that are having trouble right now are offering a better product, but at a higher price. We have a better product and at a lower price.”

For more news from LinkedIn's New Economy Editor Caroline Fairchild, click the follow button at the top of this post and follow her on Twitter here. You can also subscribe to her weekly newsletter featuring her favorite posts on Pulse from the world of venture capital and startups.