The decision and plan for Shift and CarLotz to merge came together rather quickly — it was only about four weeks ago that CarLotz chief executive Lev Peker said he got a call from Shift CEO George Arison floating a potential combination.

Determining what that combined company will ultimately look like, however, will take some time.

But it’s one that the companies believe will be cost-efficient and include several complementary pieces and opportunities for expansion.

To recap, Shift and CarLotz said late Tuesday afternoon they have entered a definitive agreement to combine in a stock-for-stock merger, with the combined company set to trade under the SFT ticker on Nasdaq.

The deal is expected close late in the fourth quarter.

The merger is entirely stock-for-stock, and Shift will be the surviving parent entity of the combined companies.

The ownership split would be approximately 53% Shift and 47% CarLotz pro forma ownership based on full diluted common stock outstanding, Shift said in presentation slides.

That combined company would be governed by a board that includes five directors from Shift, three from CarLotz, one mutually agreed upon member and one chief executive officer.

That CEO will be Jeff Clementz, who is currently Shift’s president and will take over for Arison on Sept. 1. Arison will continue as Shift’s chairman.

As far the rest of the leadership structure, Peker told Auto Remarketing, “We’re having good discussions about how to mix up the teams and what role could I play or (CarLotz president) Ozan (Kaya), and how's it going to look on a go-forward basis.”

When asked if CarLotz stores would still carry the “CarLotz” brand post-merger, Peker said that is also to be determined.

“We're still working to figure that out. The initial thought-process is that that's not going to be the case. So, we would all operate under the Shift umbrella. But today, they don't really have retail locations,” Peker said. “The locations that Shift has are processing centers and so they're kind of outside of the cities, where rent is cheaper and payroll is a little bit less, whereas we're in prime retail locations for dealerships

"So, it's still TBD, but it probably won't be operating under two banners."

What will stay the same is CarLotz’s consignment-to-retail model, Peker said.

“From that perspective, we're still going to be doing what kind of what we do and focused on consignment and retail remarketing … and they'll help us, but they'll continue focusing on consumer-sourcing and doing all of that,” Peker said.

Along those lines, the businesses are largely complementary in their operations.

In Shift’s presentation slides on the merger, one of the benefits listed is their complementary geographies, for example.

Shift’s footprint is largely on the West Coast, with CarLotz having a robust mid-Atlantic presence and elsewhere.

Overall, CarLotz’s retail locations are in Virginia, North Carolina, Florida, Alabama, Illinois and California. The latter is the only state in which the two companies have location overlap.

The combination allows CarLotz to expand its geographic footprint and inventory offering through Shift’s inventory acquisition and at-home delivery, with Shift utilizing CarLotz to scale on the East Coast.

Shift would also benefit from the relationships that CarLotz has on the consignment side, given the online retailer more sourcing power.

“CarLotz, obviously, has been a fantastic consignment retailer,” Clementz, the incoming Shift CEO, said during an earnings call Tuesday. “We’ve long been impressed with their partners, their strategic relationships. And we think that there’s an opportunity in the future to leverage those, but that’s a little bit of a future opportunity.”

CarLotz’s relationship with commercial consignors will continue in the same capacity, Peker confirmed Wednesday.

"That will continue. And we actually share one of our big, big consignors; we actually share them with Shift already. So, they service them west of Texas and we service them east of Texas, so there's some synergies to be had there, as well,” Peker said.

Among other synergies, CarLotz locations could tap into Shift’s acquisition engine, dealer technology and self-service checkout capabilities.

As an example of a way Shift’s technology could be utilized in a CarLotz store, Peker said, “They’re really good at consumer sourcing their vehicles. 95% of all vehicles that they source come from consumers. And so that would be one example of what we could use in order to fill up our locations with consumer-sourced vehicles, which are really profitable.

“I think another example is, if you look at our site today …we’re just starting to build out functionality to do buy-it-now or do schedule an appointment in the store. They already have all of that built out,” he said. “And so, we can utilize their technology again to deliver more of an omnichannel experience, with meeting the customer wherever they want to shop.”

As Shift lays out in the pro-forma business highlights, it sets up a more diversified company from both sales and sourcing: the combined companies would have an omni-channel retail platform offering both ecommerce (via Shift) and brick-and-mortar (via CarLotz), with a “Diversified and differentiated inventory sourcing strategy.”

Financially, Shift says the merger wipes out duplicative costs and pushes cost-efficiency.

Separately, but announced along with the quarterly results and merger, Shift announced a revised business plan, something that CarLotz began in June.

The respective business plan adjustments are running parallel.

In Shift’s new business plan, the company will focus most of its sales through its online checkout channel, where consumers can buy cars online for pickup or delivery.

Shift is also temporarily halting test drives. In response to market conditions, the company is adjusting its inventory mix to be more heavily composed of “Value” vehicles, which are those older than 8 years or with at least 80,000 miles.

Shift is also conducting a workforce reduction and right-sizing its physical footprint.

“At Shift, we’ve always done a great job of enabling the customer to have their desired car-buying experience. Increasingly, we’ve seen that many consumers opt for a true e-commerce offering, where they can purchase the vehicle without any in-person element,” Clementz said in a news release.

“Focusing on this sales channel not only caters to consumer demand, but is also significantly more profitable in terms of unit economics,” he said. “I’m extremely confident that the team we have in place is well positioned to execute on this revised business strategy, and I look forward to bringing the Shift and CarLotz teams together once we complete the merger later this year.”

During the earnings call, Clementz noted that the “CarLotz team is also executing upon their own path to profitability, focused on driving their retail locations to positive contribution.

“As they pursue this objective, Shift’s proprietary inventory acquisition engine will provide CarLotz with unique, value-focused, margin-rich inventory and our at-home ecommerce delivery offering will expand their geographic reach of their stores,” he said. “Their profitable stores combined with our strategy to drive our online checkout channel to positive unit economics in 2023 will create a true omnichannel offering that is self-sustainable without needing additional capital.”

Clementz would later comment on the synergies from the combined companies.

“We view it as kind of a stepping stone. So, first CarLotz is already executing and their management team is already putting in place a strategy to get to break-even in their stores. And that gives us a lot of confidence,” he said.  We then look at the profitability and sell-through of those stores increasing as Shift brings two core assets.

“As you know, Shift has been investing in technology (as) a technology-forward used auto retailer. And two of the assets that we’re most proud of would be our customer acquisition engine, so that we can source margin-rich cars, be it Value cars or our core cars,” Clementz said. “It is something that really differentiates our business and we’re proud of, so bringing that acquisition engine to the CarLotz stores.

“Secondly, our ecommerce engine, which is going to be the full focus of the core Shift business, we believe will drive incrementality to each of the CarLotz stores. Incremental sales, broaden their reach, increase our sell-through. Those two things we feel are very powerful, and frankly, they’re a lot of the premise on which we built the marketplace — especially the second, because we bout the Fair marketplace to further enhance our self-service checkout, our online checkout,” Clementz said.

“That integration is going exceptionally well and we think that same technology that will help marketplace dealer partners will help and support the growth across CarLotz.”