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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.

Go deeper

Ben Geman, author of Generate
Jan 28, 2021 - Energy & Environment

GM plans to end sales of gasoline powered cars by 2035

GM CEO Mary Barra at the GM Orion Assembly Plant plant for electric and self-driving vehicles in Michigan. Photo: Bill Pugliano/Getty Images

General Motors is setting a worldwide target to end sales of gasoline and diesel powered cars, pickups and SUVs by 2035, the automaker said Thursday.

Why it matters: GM's plan marks one of the auto industry's most aggressive steps to transform their portfolio to electric models that currently represent a tiny fraction of overall sales.

Nathan Bomey, author of Closer
8 mins ago - Economy & Business

Tesla delays Cybertruck until 2023

Tesla debuts the Cybertruck in Hawthorne, Calif., on Nov. 21, 2019. Photo: Frederic J. Brown/AFP via Getty Images

Tesla is at risk of falling behind on one of the most critical products in the American auto industry: pickups.

Why it matters: Pickups are the most profitable segment in the business and account for the first, second and third best-selling vehicles in the country. Without a serious pickup strategy, Tesla could miss out on a huge source of future income.

Defense taking steps to mitigate civilian harm after botched airstrikes

Secretary of Defense Lloyd Austin speaks during a news conference at the Pentagon in Arlington, Virginia on Sept. 1, 2021. Photo: Andrew Harrer/Bloomberg via Getty Images

Defense Secretary Lloyd Austin issued a directive Thursday to improve the U.S. military's approach to civilian harm mitigation and response, calling it a "strategic and a moral imperative."

Why it matters: The Pentagon has faced criticism for years for amassing civilian casualties in its missions, especially in the Middle East. New York Times investigations have found systemic failures in efforts to prevent civilian deaths, as well as a cover-up of a 2019 airstrike that killed dozens of women and children in Syria.