Dec 23, 2020 - Economy

Used car dealers are suddenly popular

Illustration of a upward trending bar chart with the final bar as a inflatable use car lot tube man

Illustration: Sarah Grillo/Axios

An often underrated side of the auto industry — used car sales — is the hot new thing for some automakers who sense they are losing lucrative business to online newcomers.

Why it matters: While feasting for years on profits from expensive SUVs and trucks, many automakers have forfeited the lower end of the market at precisely the time many COVID-wary consumers are looking for an affordable alternative to public transportation.

What's happening: Fast-growing digital used-car retailers like Carvana and Vroom are taking advantage of the vacuum by making it easy for budget-constrained consumers to find the car they want, complete the purchase online and then have it delivered to their doorstep.

  • "Customers love the idea of having 15,000 cars in their pocket without having to go from one dealership to another in search of what they want," said Paul Hennessy, CEO of Vroom, which went public in June.
  • "Everything that you could do in a dealership, you can do directly with Vroom — the financing, the extended warranty. Quite literally you never have to go to a dealership again," he said.
  • Both Vroom and Carvana — which offers the added twist of used-car "vending machines" — have seen strong consumer demand in 2020.
  • That has some traditional carmakers worried that their pipeline of future buyers is drying up.

The big picture: Vehicle affordability has been a growing problem for many would-be car buyers, even before the pandemic put the U.S. economy into a tailspin.

  • The average transaction price of new vehicles today is over $39,000, according to Kelley Blue Book, reflecting a heavy mix of tech-laden trucks and SUVs.
  • "Anything under $30,000 is not selling very well," including new small- and mid-sized sedans, says Michelle Krebs, executive analyst at Cox Automotive.
  • The average list price of used cars, meanwhile is about $21,700, per Cox.

Driving the news: Both Honda and Ford in recent weeks said they are building online used-car platforms to grab a larger slice of pre-owned vehicle sales.

  • Honda is adding older cars — some up to a decade old, and pushing 200,000 miles — to its nationwide inventory of late-model, certified pre-owned vehicles, according to Automotive News.
  • Ford, meanwhile, plans to aggregate online used-car inventories across all 3,100 Ford dealerships, meaning consumers don't have to choose only from the cars on their local dealer's lot.
  • "If you want a 2015 Mustang convertible in canary yellow, we can probably find it," Mark LaNeve, Ford's director of U.S. marketing, sales and service, told Automotive News.
  • Both Ford and Honda said they will feature guaranteed pricing and delivery.

The bottom line: With new vehicle prices skyrocketing, used cars — and used-car buyers — are starting to look more attractive.

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