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Is This The Next Amazon Of Used Cars?

Car

It’s been a banner year for your favorite local used car dealership, which has an incredibly active time playing around in the digital realm.  

As new car manufacturing was disrupted by the pandemic, consumers started to shun expensive new buys, while at the same time avoiding public transportation amid waves and waves of COVID, vehicle purchasing shifted to the used segment. 

In the Spring of 2020, North American automakers had to shut down factories to try to stop the spread of the virus, resulting in a decline in output by 3.3 million vehicles. According to the J.D. Power estimates, a total of 14.5 million new vehicles were sold last year, nearly a 15% decline compared to 2019.

Auto manufacturing is still trying to recover from the pandemic's devastation, combined with a massive push for EV adoption, and experts don’t believe the industry will return to 2019 levels anytime soon.

That was a brilliant opportunity for the used car segment, which saw 2020 sales skyrocket by 15-23% per month compared to 2019.

Most disruptively, used car consumers have turned to online shopping, as they have for almost everything now. 

 

Even though online sales still accounts for only around 1% of the roughly $840 billion Americans spend annually on some 40 million used cars, online sellers benefited the most from the pandemic. 

Carvana, which has completely cut out the middle man, selling direct to consumers, saw sales  increase 37% in the last year compared to 2019. 

Carvana stock has gained over 260% in 12 months …

Morgan Stanley analyst Adam Jones upgraded his rating on Carvana in late February with a price target that represented a 60% upside, noting that calling Carvana simply a used car dealer was like calling Amazon simply an online “bookseller”.

Carvana’s Q4 2020 results were a bit mixed, with bigger losses than expected but it still beat sales consensus of $1.6 billion, coming in at $1.8 billion for a significant surprise.. 

Online used car sales competitors such as Vroom.com and Shift.com have also seen large increases, but their road has been rockier, especially for Vroom. 

Vroom (VRM) shares lost 25% last week following disappointing Q4 results blamed on insufficient sales and support staff that caused write downs on old inventory.  

Shift had a good run until Q4 2020 … and just managed to pare some of those losses with quarterly reports that beat expectations. Q1 2021 sales forecasts were better than expected, and Q4 results ended up beating consensus.

So, online used cars sales--for those who get it right--could be setting the stage for the next Amazon of car retail. 

Aside from respecting social distancing and avoiding contact in dealerships, many customers have turned to online used cars purchase for another important reason: It avoids the high-pressure sales tactics that have long been a major turn-off.  

Still, with fewer new cars being sold, fewer used cars are being traded in, creating a supply crunch and causing used car prices to increase. 

According to Edmunds.com, the average price of used cars increased by 14% in the past year, compared with a 4% increase each year since 2015. As for new vehicles, prices have jumped 6% on average.

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