ndependent dealerships are resilient, competitive and growing. But what kind, and how big, of a threat do they pose to the used-car operations of franchised dealerships?
Consultant Glenn Mercer, in his "Auction of Tomorrow" study prepared for the National Auto Auction Association, noted that independents are consistent buyers at wholesale auctions and thus are essential to those auctions' health.
In addition, independents have been "gaining ground" on franchised dealerships, he said.
In 1990, used-car dealerships sold 10.7 million vehicles, or 70 percent as many vehicles as franchised dealerships. By 2015, independents sold 13.3 million vehicles, 90 percent as many used vehicles as franchised dealerships.
Mercer says there are 70,000 used-vehicle retailers in the U.S., about half of which move more than 10 vehicles per month. To some observers, the smaller used-only stores look ripe for consolidation, but Mercer noted that their very low operating costs have allowed those stores to survive even severe downturns.
Moreover, Mercer said, independents may be gaining on new-car dealerships in terms of number of used vehicles sold, but the two groups don't necessarily go after the same market.
"I don't think there are any new-car dealers whose used-car departments are selling 11-year-old cars," Mercer said. "Because used-car dealers are doing well, I guess that implies they continue to be rivals of used-car operations of new-car dealerships.
"I just don't think there's a lot of overlap," he said. "I mean, Walmart is a rival to Nordstrom, but you tell me how much of a rival."
For now, new-car dealerships will have plenty on their plate.
Cox Automotive estimates off-lease returns — the younger vehicles that are prime inventory for franchised dealerships' used-car operations — at 3.9 million vehicles in 2018. That is an 8.4 percent increase from 3.6 million last year. It will be several years before that bulge in inventory ages to where it fits the spot where many independents compete.
That's not to say that some independents don't compete in the younger-vehicle space. CarMax Inc., of Richmond, Va., and DriveTime Automotive Group Inc., of Tempe, Ariz., for example, have found success with a focus that includes vehicles in the 2- to 6-year-old age range.
Certain dealership groups now want to chase the same market segment as CarMax.
Penske Automotive Group Inc., AutoNation Inc. and Sonic Automotive Inc. are some of the big names that have opened their own used-vehicle-only retail sites to compete. Group 1 Automotive Inc. plans to sell older, higher-mileage used vehicles, under a separate Val-U-Line brand, at its existing dealerships.
Mercer said the dealership groups' move into used-only stores is the same reason Group 1 is trying to grow in Brazil and Penske added dealerships in the U.K.
"I think it might be another one of these balance things," Mercer said. "It might be as much limited growth opportunities in the core market as it is pursuit of growth opportunities in used cars."
New-vehicle sales have slowed a bit. After a seven-year streak of rising sales, U.S. light-vehicle sales dropped to 17.25 million in 2017, a 1.8 percent decline from the previous year's record 17.55 million.
Analysts expect another new-vehicle sales dip in 2018, this time perhaps below the 17 million threshold.
AutoNation CEO Mike Jackson seemed to anticipate the sales drift with comments he made in 2016 on why the dealership group decided to open its used-vehicle stores, AutoNation USA, returning to a strategy it tried once and abandoned. He said the endeavor would allow AutoNation to grow, whether or not the new-car market is booming.
"If I go back five years ago, anticipating the [new-vehicle sales] plateau would eventually arise, I said I need a strategy where we can take much more of our destiny in our own hands and continue to grow the business," regardless of economic circumstances and free of automaker dictates, Jackson said at the time.
While franchised dealership groups' used-only stores now may be direct competitors to CarMax, Mercer said the used-vehicle retail giant is not a threat to franchised dealerships' used-car operations. Nor does CarMax portend the consolidation of all other independents.
Despite its status as the largest U.S. used-vehicle retailer, CarMax's market share reached just 1.8 percent of the 39.2 million used vehicles sold in 2017. That makes CarMax a "slow-moving bulldozer," Mercer said.
"I'm not saying anything other than CarMax is phenomenally successful," Mercer said. "But I'm saying they are munching their way across America, opening stores to take a sliver of the used-car buying population that their model appeals to. It's great, but I don't see that as upending the 35,000 to 70,000 independent used-car dealerships or the used-car side of new-car dealerships."