How commuting will change after COVID-19

Yahoo Finance’s Alexis Christoforous and Brian Sozzi speak with Shift.com Co-Founder and Co-CEO George Arison about what commuting will look like after coronavirus ends, and how this will impact the auto industry.

Video Transcript

ALEXIS CHRISTOFOROUS: We were talking just a little while ago on the show about Facebook becoming one of the first major companies to let its employees work from home over the long haul, well past this pandemic. Facebook taking steps to let half of its 45,000 workers at some point be able to work from home within the next decade. It's a major change that will likely impact the auto industry because we would presumably have fewer people commuting to work.

Joining us now to talk about this is George Arison. He is co-founder and co-CEO of Shift.com. George, good to have you with us.

For people who are not familiar with your company, you're an online marketplace. You bring used cars to customers' doorsteps for test drives. Tell me what business has been like, especially since people can't get to dealerships right now. Are they rushing to your platform?

GEORGE ARISON: Yeah, we've seen a huge increase in people coming to Shift.com ever since the pandemic started. It's been kind of incredible. Initially sales were obviously down, not surprisingly. California, where we have a huge presence, was the most strict in terms of lockdown, so obviously there was a big impact there. But then within a couple of weeks sales came back, and we finished April down only about 11% over February. And May is now trending to equal where we had hoped April would be prepandemic with pretty substantial growth over last year. So pretty happy about that for sure.

There's a definite change in the type of user you're getting and the behavior in the purchase. A lot more subprime applicants for financing, for example. A lot more searches for US domestic cars versus foreign-made cars. And, you know, people are buying cheaper vehicles. Our average ASP has gone down by about $1,500. We used to get about $15,500 in terms of the ASP. Now we're closer to, like, $14,000. So people are looking for cheaper vehicles given the situation.

That's not surprising, right? In an economic downturn, you'd expect people to buy cheaper items, and so that's sort of what we're seeing.

ALEXIS CHRISTOFOROUS: You know, before this pandemic, I know Shift had been doing really well. You raised nearly $300 million in funding from investors. You were even eying an IPO at some point in 2021. What are those plans looking like right now for you?

GEORGE ARISON: Yeah, the pandemic definitely hit us really badly in terms of capital raising because we were planning on getting onto the markets to fund raise in mid April to late May. Obviously the markets have been very challenging for private companies in this environment, which is, again, not surprising at all, what you'd expect. And so we've had to delay our fundraising plans, which is not ideal. But, you know, we will probably get out there hopefully in the coming months and raise capital given how the business has performed.

I think that for us, you know, this year will be a slower year than we had initially anticipated. We had hoped to do about $250 million in revenue this year. That's going to be less likely because I think growth is going to be harder to drive in this economic uncertain time. And we're being very, very careful with burn because cash is king right now.

That said, you know, I think we can still have a reasonably good path towards being a public company in the near term-- you know, not tomorrow but in the next few quarters, assuming that we execute really well. I think that used cars are generally recession proof, they say. I mean, people still have to buy cars, and people buy more used than new in an economic uncertain time period. So that should definitely help us.

And obviously the fact that we bring the cars to the customer and have done that for years now versus, you know, having people come to us-- we're now seeing a lot more people transition to home delivery for everything else, and so our model is very well designed for that, and I think that's going to be helpful for us in the future.

BRIAN SOZZI: George, in terms of trajectory, where do you see prices for used vehicles and new vehicles going into the end of the year?

GEORGE ARISON: Hard for me to talk about new, quite honestly, because that's OEM driven. You'll probably see substantial discounting from OEMs at some point starting in the summer, especially from the credit side, if not from the purchase side.

On the used, we've seen prices fall about 10% so far. I don't know if that's going to stay there. Probably not, to be honest, because I think demand's going to come back for used vehicles. But right now, prices have come down, especially for what are called late-model used vehicles, meaning cars that are 2019, 2018, 2017 models.

And there is a challenge because there's a lot of fleet inventory which might have to come into the market to be sold. You know, everyone knows about challenges that Hertz is having, for example. Our fleet owners like Hertz have a lot of cars they don't actually need right now because travel's not happening or other type of use is not happening. So those cars might come into the market, driving prices for late-model used cars down. And that's something that everyone's kind of very concerned about and having to manage in this environment.

ALEXIS CHRISTOFOROUS: Hey, George, I know timing has been tough for your company because I understand that you had an app called Taxi Magic well before Uber and Lyft came on the scene, and it was an app that let people be able to call up for a cab that was later popularized by Uber and by Lyft. You even had Lehman Brothers as one of your big investors, and then, of course, Lehman Brothers collapsed in '08, and with it, I guess, went Taxi Magic. But what are your thoughts on shared ride-- ride-sharing companies going forward now post this pandemic with a lot of people perhaps being a little skittish about getting into those cars?

GEORGE ARISON: Totally. So Taxi Magic didn't collapse after that. We just had a tough kind of couple quarters. Lehman was our biggest customer at that point, and we had to raise a round of funding without our customer after that happened. I learned a lot about how to handle kind of-- or, you know, complexity and challenging times during that, you know, year, year and a half. So I generally, you know, think it was a good experience for me even though it was a really tough experience.

My sense is that we're going to see a pretty steep decrease in the usage of ride sharing in the coming couple of years. Same thing with public transportation. People are pretty skittish about getting into public transportation.

If you just take the surveys of employees at Shift even, the biggest concern people have about reopening is, hey, how do I get back to work? because I don't want to take public transport. So I actually think that demand for cars will be very, very high overall in the next 12 months or so because people who otherwise might have been doing Uber or Lyfts or people who are doing public transportation will want to own a vehicle.

Anecdotally, we're hearing a lot of people who don't have a car at all are younger parents or, you know, millennials living in cities who are thinking about, hey, do I get out of the city and move into the suburbs, or do I buy a car in the city? How do I park it? et cetera. So my sense is that you're going to see a wave of people wanting to have a vehicle and not do public transportation or ride share.

ALEXIS CHRISTOFOROUS: Yeah, and actually some companies are mandating you can't take public transport to work, like the New York Stock Exchange getting back to business on Tuesday telling workers, at least in the short term, you can't take public transit and come to work. So lots of challenges for all of us going forward.

George Arison, co-CEO of Shift.com, thanks so much, and have a good weekend.

GEORGE ARISON: Thank you very much. Have a good weekend.