When Uber launched in Toronto six years ago, the ridesharing service kicked off a veritable war with the city’s taxi industry, a conflict that spilled over into other major Canadian municipalities.
Now, another similar fight looks to be brewing, but this time the combatants are (again) an upstart technology company on one side, and used car dealers on the other.
Clutch, a service that lets shoppers browse used cars online and then have them delivered directly to their door, began operations in Halifax three years ago and is this week launching in Canada’s largest city. Just a few months ago, co-founder Steve Seibel recruited three former senior executives from Uber Eats Canada in hopes of scaling the business nationwide.
The company is officially licensed to operate in the province, but that doesn't mean its service is legal, according to the Used Car Dealers Association of Ontario.
“Quite frankly, their business model doesn’t fit with the law,” says Warren Barnard, executive director of the organization, which represents 6,500 dealers in the province.
At issue is a rule that requires all vehicle sellers in Ontario to conduct transactions at their registered place of business.
Clutch's main selling point is that it doesn't have dealerships, so it doesn't require customers to come to the company. Rather, it works the other way around.
Prospective buyers can browse available vehicles on Clutch’s website and book a test drive. An “auto enthusiast” employed by the company then drives the vehicle from Clutch’s storage facility to the desired location. If the customer wants to buy the car, the agent returns with the paperwork and hands the keys over. On the flip side, vehicle owners can also buy or sell to Clutch.
Dan Park, who came on board as chief executive in December after three years as general manager of Uber Eats Canada, says Clutch wants to eliminate time-consuming visits to dealerships or having to deal with strangers – the traditional ways of buying a used vehicle.
The average consumer spends about four hours at a dealership when purchasing a car, according to the company. Also, without expensive overhead, Clutch says it is able to sell its vehicles at lower prices.
“We want to give people a better option than going to a dealership or meeting someone in a parking lot somewhere,” he says.
The transaction rule hasn't been an issue in Halifax, Park adds, because of looser regulations in Nova Scotia.
He also believes the company is in compliance with Ontario laws because its sales are still technically concluded at its registered place of business in Toronto. Deals aren't complete until they are countersigned at Clutch's office.
Park says that if all goes well in Toronto, the company will look to expand to other Canadian cities.
The Ontario Motor Vehicle Industry Council, which licenses all auto dealers in the province, is aware of the dealer association’s objection with Clutch and says it has taken steps to address them. A representative would not elaborate.
“It is common for OMVIC to assist, educate and inform registrants, especially new registrants, when matters of non-compliance are identified,” said spokesman Terry O’Keefe. “We cannot publicly divulge details about actions related to an ongoing matter that could potentially result in administrative or enforcement action.”
Barnard doesn’t object to Clutch’s business model, but he wants a level playing field for his organization’s members. Ontario enacted the rule that ties sales to a place of business decades ago to protect consumers from so-called curbsiders, or unlicensed dealers.
With e-commerce now omnipresent, however, it may be time to adjust the rules.
“That’s fine, that’s where we’re going. It’s the Amazon-ization of our economy and the law needs to change,” he says. “But if Clutch can do it, so should any other dealer.”
The company, which now has 30 employees, has gained some fans. Sarah Bustin, a digital marketer in Halifax, used Clutch in September to buy a 2018 Volkwagen Tiguan. The paperwork took about 10 minutes and she estimates she paid about $2,000 less than she would have had she gone through a regular dealer.
“If just felt like a more streamlined and modern way to buy a car than going into the dealership,” she says. “That’s what was so amazing about it. I kept thinking, ‘There’s no way I own this car, it’s just too easy.’”
Clutch is seeking to emulate the growth of similar online operations in the United States, notably Carvana. The seven-year-old Arizona-based company last month announced further expansions in Minnesota and Wisconsin and now operates in 153 U.S. markets. Company executives believe they can sell two million cars per year, up from about 100,000 in 2018.
Despite those projections, e-commerce experts aren’t sure online operations such as Carvana and Clutch will make a big dent in the overall used car market. Unlike commodified goods such as electronics or media, purchases are big and buyers often have very specific wants and needs.
“There are structural impediments to this growing rapidly that you didn’t have in other markets that have gone online,” says David Soberman, the Canadian National Chair in Strategic Marketing at the University of Toronto.
“Things that are super expensive and high-involvement decisions are much less likely to move online.”
Stay on top of all our Drive stories. We have a Drive newsletter covering car reviews, innovative new cars and the ups and downs of everyday driving. Sign up today.