Online used-vehicle retailers are anticipating an eventual normalization of the topsy-turvy used-vehicle market and auto retail in general, but for varying reasons.
For retail-first firms Carvana, Vroom and Shift, seasonably cooling used-vehicle prices could also mean slowing tailwinds on the per-car gross profits they are able to command. For CarLotz, which specializes in consignment, more new-vehicle production could spell some relief.
Traditional franchised dealers can no doubt relate to all four companies.
Used-vehicle prices have been on a wild ride: diving in the spring of 2020 at the onset of the coronavirus pandemic in the U.S. and then swiftly rebounding, eventually reaching record heights this spring and summer.
As analysts and used-vehicle market observers expected, wholesale prices have finally crested. The Manheim Used Vehicle Value Index fell 2.6 percent month-over-month in July — but was still up 24 percent compared with July 2020. Prices are widely expected to return to seasonal patterns — meaning they'll cool off in the fall and winter — but remain elevated overall.
As with traditional dealerships, the high used-vehicle selling prices have driven up gross profits for the digital upstarts, even helping Carvana achieve its first quarterly net profit.
But CarLotz has had no choice but to pivot to buying from auctions as it saw its supply of consignment vehicles dry up amid a shortage of new vehicles. CarLotz largely depends on commercial customers acquiring new vehicles and getting rid of their used ones. The company now aims to grow its consumer-sourced inventory to offset the recent disruptions.
With that strategy, it joins, once again, most everyone else in auto retail.
While the digital upstarts grapple with the same macro issues affecting traditional dealers, it's worth noting the dealership advantage for obtaining used-vehicle inventory: lease returns and trade-ins.
After that, it's a wide open and fragmented used-vehicle market, which is why companies such as Carvana, Vroom, Shift and CarLotz came along in the first place.