Will the Shift Bankruptcy Impact the Instant Offer Market?

The bankruptcy filing of Shift Technologies, Inc. sent shockwaves through the used-car sales industry. Let’s see what we can learn about its mid-October flameout.

First, a bit of history. Sillicon Valley entrepreneur George Arison founded Shift in 2013 with five partners. Shift launched in 2015 in San Francisco as an online consignment-based marketplace for used vehicles. It quickly moved away from its peer-to-peer model, as Shift began buying vehicles and selling them directly to retail buyers.

Arison made convincing pitches to investors between 2014 and 2019, raising $50 million from Goldman Sachs in 2015 and $300 million in 2019 from an array of venture capital firms.

With the COVID pandemic, 2020 was a watershed year for online used car sellers. As supply bottlenecks squeezed new-vehicle sales, the used car market saw explosive growth. Shift and its primary competitor, Carvana, attempted to capitalize on this growth by sucking up inventory (at higher prices) and growing via M&A activity.

Once the pandemic eased, the used vehicle market returned to more traditional patterns. By late 2022 and early 2023, Carvana and Shift faltered. While Carvana nearly collapsed in 2022, Shift focused on acquisitions.

Two years earlier, Shift took an unorthodox path to becoming a public company. In June 2020, Arison led a merger with special-purpose acquisition company (SPAC) Insurance Acquisition Corp. Shift was listed on NASDAQ in October 2020 with a $415.9 million valuation.

The following year, it looked like the right move. Shift earned $637 million in revenue in 2021 (three times year-over-year growth). New market dynamics emerged in 2022. With used car prices cooling, inflation rising, tighter capital markets, and more economic uncertainty, Shift began buying. It acquired the dealer listing marketplace assets of Fair Technologies in May. In December, Shift acquired used-vehicle consignor CarLotz.

These acquisitions gave Shift much wider access to the dealer channel. With the Fair acquisition, Shift hoped to build a digital marketplace where “dealers and independent sellers could list their cars alongside Shift’s owned inventory,” according to a bankruptcy filing.

The CarLotz merger “was designed to leverage its presence and dealer marketplace platform on the East Coast through a new omnichannel experience,” according to TechCrunch.

Shift tried to pivot in June 2023 to a dealer-based sales model rather than offering vehicles to retail buyers. It was too late. The company filed for bankruptcy on Oct. 12.

This outcome could have been avoided with different management decisions. Carvana, meanwhile, has seen a rebound in its shares after spending a year focusing on increasing profitability.

As one of the first entries into the instant offer market, Shift helped pave the way for an improved consumer experience. Shift raised customer expectations for price transparency and at-home service that will continue long after it has exited the scene.