Digital newcomers gain used-car ground

Online retailers continue to make gains in used-vehicle sales, and with the coronavirus pandemic keeping many shoppers home this spring, they hope to further their foothold in 2020.

In our 2019 ranking of the top 100 used-vehicle retailers, upstart Carvana jumped to No. 4, after making its debut at No. 8 in 2018. Carvana's used-retail units jumped 89 percent in 2019 to 177,549. The Tempe, Ariz., company accomplished this feat with an asset-light approach that included vending machines and vehicle reconditioning centers but otherwise relied mostly on its Web presence.

It trailed only CarMax, Penske Automotive Group and AutoNation, which were 1, 2 and 3, respectively, in 2018 as well.

CarMax posted record sales in its latest fiscal year but, like others, has seen a stark change in business just over three months into 2020.

Many retailers were headed into the busy spring selling season with used-vehicle sales poised to be above 2019 levels. The outbreak of the novel coronavirus caused a pandemic that arrived in earnest in the U.S. market in mid-March.

That's when retailers began to see declines.

Cox Automotive Chief Economist Jonathan Smoke said in a conference call April 7 that there would likely be a historic decline in vehicle sales in the second quarter of 2020, with a potential recovery perhaps arriving in the second half of the year.

That outlook assumes the pandemic — which kept many retailers closed in mid-April and millions of consumers mostly confined to their homes — improves sooner rather than later.

For 2020, Smoke said new-vehicle sales could fall below 12 million units and used-vehicle sales could drop below 31 million.

Used-vehicle volume has been estimated at about 40 million units for the past several years, and before March it was expected to remain at that level in 2020.

If the virus-caused slowdown lasts longer than expected or reoccurs, new-vehicle sales could fall below 11 million, and used-vehicle sales could drop below 29 million, Smoke said.

"That's a bleak outlook, compared to where we were in January," Smoke said. "I hope we're wrong."

Vroom CEO Paul Hennessy told Automotive News that his company had seen a decline since the outbreak of the pandemic caused mass stay-at-home orders in the U.S., but as traditional auto retailers leaned more toward digital sales, often out of necessity, he said his company was well-positioned to capitalize in 2020.

Vroom, a digital newcomer similar to Carvana, made its debut in Automotive News' 2019 used-vehicle retail rankings at No. 16, thanks to unit sales of 31,963.

"There's nothing we can do if people are out of work and deferring larger purchases," Hennessy said. He added that the 7-year-old company will still be selling its "fair share" of the total vehicles moved in 2020. "And because of our model, we think we're going to get a disproportionate share," he added, explaining that "as dark as this is" it could be a "catalyst" to more consumers buying vehicles from online retailers. Sonic Automotive skipped past Group 1 Automotive for the No. 6 spot, just behind Lithia Motors. Sonic's used-vehicle retail sales grew 16 percent in 2019 to 162,149. It got a boost from its EchoPark Automotive specialty used-vehicle stores, which saw retail volume rise 68 percent in 2019 to 49,520 units.

In announcing the group's full-year results in February, CEO David Smith hailed EchoPark for aiding an "exceptional" year for the dealership group. Smith said at the time that the company planned to open three EchoPark stores in 2020. It had nine standalone EchoPark locations.

In a Securities and Exchange Commission filing last week, Sonic said the virus prompted it to cancel performance-based stock bonuses that had been approved in February for more than 80 key employees. Other publicly traded retailers planned layoffs or furloughs and slashed executive pay and other costs.

But all retailers were feeling the brunt of the pandemic, after seeing strong sales in 2019.

Findlay Automotive Group, based in Henderson, Nev., jumped seven spots in the 2019 rankings to No. 33. Its used-vehicle retail sales grew 17 percent to 20,504.

Robby Findlay, the group's director of operations, credited the success last year to using Cox Automotive's vAuto software to implement competitive pricing and focus on vehicle turns.

He also said the group zeroed in on enhancing its digital presence, particularly its vehicle images.

In the first quarter of 2019, the 32-store group parted ways with an outside vendor and brought its vehicle photography in-house, while also buying four photo booths. "And just got cleaner, crisper pictures for customer viewing," Findlay said.

The group, which has stores in Nevada, Arizona, Utah, Idaho and Oregon, had traditionally been more focused on new-vehicle sales.

"We still focus more on new, but I think in the last year we've realized the importance of used-vehicle sales, probably before the COVID-19 outbreak," he said. "It's become a bigger focus."

Findlay said the group was on a record pace for used-vehicle sales in the first quarter of 2020 and was ramping up inventory levels for tax-return season. "Who knows what it's going to be like now?" Findlay said. "We thought it was going to be a record used-car year."

Since the outbreak, Findlay Auto Group has been doing three to four times more online sales and at-home deliveries as usual. At the same time, foot traffic at the group's brick-and-mortar stores has been at about 40 percent of its typical level.

Even before the pandemic struck, Findlay said one of his biggest takeaways from 2019 was that "CarMax and Carvana and some of these other disrupters really stepped their games up. And I think it made us realize that if we don't become better at used cars, we're going to be on the outside looking in."