CarGurus’ Acquisition of CarOffer is Another Step Forward For The Instant Offer Market

Building a powerhouse digital platform that enables dealers to easily and conveniently buy and sell their used vehicles with consumers or each other isn’t an easy task.

We’ve glimpsed a window into this over the past few months, as we’ve taken note of the moves and financial results from CarGurus around their CarOffer business.

About? three years ago, CarGurus – the consumer-facing digital auto marketplace – purchased a majority stake in CarOffer, which focuses on dealer-to-dealer sales. That deal included an option that allowed CarGurus to acquire the remaining minority stake within three years.

CarGurus closed this acquisition on Dec. 4; replaced CarOffer’s top executive; and announced it would be operating it as a separate business unit. The connective tissue between the businesses is the most relevant development for the instant offer market.

In early 2021, CarGurus incorporated CarOffer’s Buying Matrix platform into its marketplace to grow its dealer subscriber base. Buying Matrix automatically matches buy orders to vehicle inventory, which allows sellers to accept an offer and check out.

This move has yet to bear fruit, which we can see by looking more closely at CarGurus’ third-quarter financial results that were announced in November.

While the company grew overall revenue 8% from the year-ago quarter, revenue from its dealer wholesale segment nosedived 84% for an $11.7 million operating loss. The company grew average revenue from subscribing dealers by 9%.

This is likely why CarOffer’s CEO and founder Bruce Thompson was replaced by Zach Hallowell, who joined CarGurus in October with a high-profile resume. Prior to joining the company, he led the digital wholesale marketplace for Cox Automotive’s Manheim Auctions. In the early 2000s, he guided product management for Openlane (formerly KAR Global).

When CarGurus made its initial investment of $140 million for 51% of CarOffer, the business was worth substantially more, a valuation that was perhaps inflated by the artificially high wholesale vehicle values during the pandemic. When it closed the deal for the remaining 49% of CarOffer on Dec. 4, the stake was worth $75 million.

By doubling down on CarOffer, CarGurus continues to believe in creating a digital platform and all the associated tools needed to make it successful. Openlane and Manheim have developed wholesale auction platforms with end-to-end services supporting the sale, financing, logistics, reconditioning and other aspects of the deal.

Despite all this, dealers still need to shorten the sales cycle with digital tools that provide more accurate vehicle values. Acquiring inventory is crucial, and dealers must also be able to reduce friction for consumers who are ready to sell.

The automotive industry will have its eyes on CarGurus and Hallowell to see what steps will be taken, including how they approach the instant offer market.