The COVID Used Car Desert is coming.

[joe.pistell]

VIN's are on a conveyor belt. New car buyers use their car for 2-5 years and that VIN gets traded and becomes a used car. That used VIN gets used for 2-5 years and gets traded (or sold). That VIN keeps moving down the conveyor belt, from retailer to retailer, from seller to buyer.

COVID came to us in March of 2020 and that decline in sales volume is coming down the conveyor belt. We're 27 months into COVID, and we've got a Used Car Desert that's just about to show itself in used car prices. Guess who is going to get hit the hardest by this reduced supply of 'like new, used cars?'. The Wall Street used car titans, CarMax, Carvana, EchoPark, Vroom and all of the stand alone used car stores selling like new used cars.

Just over the horizon is the return of new car supply. The Used Car Desert will cause The Wall Street used car titans, CarMax, Carvana, EchoPark, Vroom to make an effort to 'steal the trade-ins'.

Thoughts?

 

[Alex Snyder]

With everyone focused on new cars and EVs... THIS is the topic that is sitting in all of our blind spots right now. So glad you're bringing this up, Joe!

I don't have much to add on the used car supply vs. coming new car supply battles. But I do want to point out some other things going on.

• The average age of the US vehicle is now 12.2 years old. The oldest ever. Autoblog article linked.
• The EPA has raised the amount of ethanol that must be blended with gasoline. ABC News report linked.
• The world's food supply is at risk due to fertilizer shortage. Poynter's article linked.
• Fertilizer prices soaring due to the Russian/Ukrainian conflict. CNBC article linked.
• USDA says Corn bushel production is forecasted to be down for 2022/23. Marketwatch linked.
• Older cars and the environment don't do well with ethanol blended fuel. Yale study from 2015 linked.

 

[joe.pistell]

Our grandkids will look back at this time and see all of the unfed ppl in the world and look at Roughly 40 percent of the 1.81 billion bushels of U.S. corn crop is refined into ethanol. Rather embarrassing I'd say

 

[joe.pistell]

Used Car Desert strategy thoughts cont'd...

Watch new car supply closely. All OEMs are enjoying how scarcity of supply and high demand & this is creating ultra high profits. They all believe they will maintain this position into the future... haha NOT!!

Once one OEM has more supply than another, it'll rev up incentives and take share. Google GM's Build-Shy strategy, 100,000-ish units, all built, waiting for chips.

[sidebar] Will waves and waves of EV supply cause Ford's CEO to abandon his sell direct plan? GM alone plans to create 23 new EV models in 2023. Hyundai/Kia are getting good reviews. Will the "showroom, buy it now" experience trump the "showroom test drive, buy it online, wait for it to arrive" experience? Want insights? See Best Buy's amazing growth in the Amazon era.

 

[joe.pistell]

Used Car Desert strategy thoughts cont'd...

The Battle to Steal Your Trade-in is coming. Someone out there is going to build a site that'll aggregate Instant Cash Offer Quotes. IDK who, but it's a logical next step in this new world. The 'trade-in intender' drops in their VIN and gets back ICO quotes from any ICO provider with an API.

Even without an ICO aggregator, the Wall Street Titans are in a zero sum game to get inventory (i.e. more ads, more billboards, more direct mail, etc). A growing share of your 'trade-in intenders' will have their highest ICO in hand. Range quotes will quickly lose their value.

What is actionable? Dealers that want trade-ins*...

1. Will want ways to post internet trade-in prices that are inline with ICOs.
2. In the 43 states that allow sales tax credit for trade-ins, you will work this angle hard. It'll be all over your site.
3. Tighter used car margins will require more discipline in the professional appraisal process, and, dealers will want superior sales tools and training to defend the appraisal values.

Thoughts?
*"Trade-in by osmosis" is not a biz plan.

 

[Dan Sayer]

Oh, I thought this post was about a "Dessert" so obviously wanted to be part of that discussion. But now see it is just some car stuff. Moving on.

Actually, this is great @joe.pistell (and I couldn't agree more about the ethanol, and I'm in Nebraska!).

 

[LotPop]

VIN's are on a conveyor belt. New car buyers use their car for 2-5 years and that VIN gets traded and becomes a used car. That used VIN gets used for 2-5 years and gets traded (or sold). That VIN keeps moving down the conveyor belt, from retailer to retailer, from seller to buyer.

COVID came to us in March of 2020 and that decline in sales volume is coming down the conveyor belt. We're 27 months into COVID, and we've got a Used Car Desert that's just about to show itself in used car prices. Guess who is going to get hit the hardest by this reduced supply of 'like new, used cars?'. The Wall Street used car titans, CarMax, Carvana, EchoPark, Vroom and all of the stand alone used car stores selling like new used cars.

Just over the horizon is the return of new car supply. The Used Car Desert will cause The Wall Street used car titans, CarMax, Carvana, EchoPark, Vroom to make an effort to 'steal the trade-ins'.

Thoughts?

there are over 40 million more registered cars in the US from just 9 years ago, in my eyes there is not much of a shortage. We have only lost a few million new car sales to the peak of 17 million and cars are lasting longer, the average vehicle on the road is over 12 years old. Am I missing something?

 

[Dan Sayer]

there are over 40 million more registered cars in the US from just 9 years ago, in my eyes there is not much of a shortage. We have only lost a few million new car sales to the peak of 17 million and cars are lasting longer, the average vehicle on the road is over 12 years old. Am I missing something?

Jasen, what is the volume of vehicles moving through the auctions in the last 27 months vs time period prior? Do you have that data? Or is that relevant? Does the number of vehicles that exist (licensed) in the market have anything to do with the number of vehicles for sale?

 

[joe.pistell]

there are over 40 million more registered cars in the US from just 9 years ago, in my eyes there is not much of a shortage. We have only lost a few million new car sales to the peak of 17 million and cars are lasting longer, the average vehicle on the road is over 12 years old. Am I missing something?

Jasen, millions of used cars are spread across a spectrum of age and miles. Generally speaking, franchised dealers and Carvana, CarMax, Echo Park, etc sell the same used car profile.

I did a spot check on Carvana a few months back: 24k cars for sale & 80% hit this profile:

1. Price: $16,000 to $60,000
2. Miles: 16,000 to 70k miles
3. Age: 10 yrs old or newer

Just like many franchised dealers, used cars are under 10yrs old & under 100k miles.

Next, new car tradeins are a great source of this used car profile. (See 2019 NADA chart below).


This is why I say watch the new car supply, logically, it'll drive the supply of tradeins. And, fewer new cars were bought in COVID, these prized low(er) mile used cars will be in short supply and high demand.. ergo "The Battle to Steal Your Trade-in is coming"