For a while, the story surrounding the automotive industry – especially online platforms – seemed simple.
Lots of demand. Little supply.
Skyrocketing prices too, which, depending on where you look, would hit retailers’ margins (after all, they have to buy the inventory that’s being sold).
This results season, no Nirvana for Carvana. Or CarMax. Or Vroom. Double-digit inventory declines have been the norm. Disruptors are themselves disrupted, at least in the short term.
Let’s keep the share price decline – where Carvana is down 65% YTD, CarMax is down 26%, Vroom 85% – in the proverbial rearview mirror, at least for a moment. Penske Auto Group is a relative bright spot, down “only” about 9% for the year.
Many of these companies are losing money, like Carvana and Vroom. CarMax makes a profit. Think too.
But it’s recent commentary from companies like CarMax and its detail on used-vehicle retail sales that has investors thinking – and making us wonder how much longer there is before the supply/demand equation does balance out a bit.
CarMax said used vehicle units sold were down 5.2% year over year and comp store counts were down 6.5%. But prices – with inflationary tailwinds – have risen nearly 40%. This mismatch was enough to drive revenue up 32% year over year.
During an earnings conference call with analysts, CEO Bill Nash said, “We believe a number of macro factors weighed on our fourth quarter unit sales performance, including lower consumer confidence, the omicron-fueled surge in COVID cases, vehicle affordability, and the run-in of stimulus payments paid out in the prior-year period. Tailwinds from stimulus payments have eased; the inflation headwind is in place.
And, as PYMNTS’ own data showed, more than 60% of us live paycheck to paycheck, indicating that the more money spent paying bills, the less money there is to buy a new (or used) car; bills that are already in place are harder to meet. On this last point, certain warning signs also appear on the state of the consumer. The company’s loan loss provision is now $54 million “plus normalized” compared to a provision of $4.6 million in the fourth quarter a year ago.
Dig a little deeper, and car buying seems to be moving inexorably online. CarMax noted that total online channel revenue was 31% compared to 17% a year ago.
Bumpy road with more revenue reports to come
Change gears a bit and Carvana has been on a bumpy road as well.
Read more: Carvana collapses in ‘difficult, difficult and deteriorating’ environment
“It seemed like the industry environment was deteriorating throughout, which I think is probably the simplest way to characterize it,” Carvana Chairman and CEO Ernie Garcia said during the interview. a call for results. Units fell, margins too. In terms of data, there was a 7% quarter-over-quarter drop in the number of units sold in the first three months of 2022, as well as an unprecedented drop in gross profit per unit (GPU ) of the company, which fell 22% to $2,833 from more than $3,600 at the end of last year.
Vroom’s most recent results, announced last month, also show margin pressures. Although the average selling price per unit increased to $33,699 in the last period from $24,909 last year, gross profit per e-commerce vehicle unit fell to $473 from $878 l ‘last year. As detailed in supplemental company filings and management commentary, acquisition costs for premium vehicles were higher, and remanufacturing costs were also higher, tied to labor shortages.
See more : Vroom slips as vehicle pricing fails to offset higher acquisition costs
When units are declining and prices are this high, something has to give. The fact that the Federal Reserve is raising its rates means that the capital environment for these companies is also becoming more difficult. (Carvana has previously said it will seek to raise a few billion dollars through new equity offerings.)
We’ll know more later in the month, as Penske is set to release its own results. But consumers seem less inclined to buy, to kick the tires — and the industry is still looking for a balance between supply, demand and price.