Online car platforms struggle with supply and demand

For a while, the story surrounding the auto industry – especially online platforms – seemed simple.

Lots of demand. little show.

High prices, too, which, depending on where you look, will hit retailers’ profit margins (after all, they have to buy the inventory being sold).

This is earnings season, not the nirvana of Carvana. or CarMax. or frome. Double-digit declines in stocks were the norm. The malfunctions themselves are down, at least in the near term.

Let’s leave the stock price dips — the Carvana down 65% year-to-date, the CarMax losing 26%, and the Vroom a staggering 85% — in the proverbial rear-view mirror, at least for a moment. Penske Auto Group is a relatively bright spot, having fallen “only” 9% for the year.

Many of these companies, like Carvana and Vroom, lose money. CarMax makes a profit. So does Penske.

But it’s the recent commentary from companies like CarMax, and its details on used-car retail sales that give investors pause — and make us wonder how long the road ahead will be until the supply/demand equation balances out a bit.

CarMax said used-vehicle units sold fell 5.2% year over year, and corporate store numbers were down 6.5%. But prices – with the tailwind of inflation – are up about 40%. This mismatch was enough to increase revenue 32% year over year.

“We believe a number of macro factors impacted our fourth-quarter unit sales performance, including waning consumer confidence, an omicron-fueled rise in COVID cases, vehicle affordability and turnaround,” CEO Bill Nash said during an earnings conference call with analysts. “Benefits of stimulus paid in the prior year period.” The tailwind of stimulus payments has abated; inflation headwinds are fully in place.

As data from PYMNTS has shown, more than 60% of us live paycheck to paycheck, indicating that the more money is spent to pay bills, the less money is available to buy new (or used) cars; It’s hard to meet the bills that already exist. Up to this last point, some warning signs also appear on the consumer’s condition. The company’s provision for loan losses is now $54 million “more normal” versus a provision of $4.6 million in the prior year fourth quarter.

Dig a little deeper, and it seems like buying cars is turning relentlessly online. CarMax noted that total revenue from online channels was 31% versus 17% a year ago.

Bumpy road with more earnings reports to come

He shifted gears a bit and the Carvana was on a bumpy road as well.

Read more: Carvana crashes into a ‘difficult, tough, degraded’ environment

“It looks like the industry environment has been deteriorating all the time, I think is probably the simplest way to describe it,” Carvana Chairman and CEO Ernie Garcia said on an earnings call. Units are down, and margins are down, too. In terms of data, there was a 7% quarter-on-quarter decline in the number of units sold in the first three months of 2022, as well as a previously unseen decline in the company’s gross profit per unit (GPU), which fell 22% to $2,833. of more than $3,600 at the end of last year.

Vroom’s latest results, announced last month, show margin pressures as well. Although the average sales price per unit increased to $33,699 lately from $24,909 last year, gross profit per unit vehicle for e-commerce has fallen to $473 from $878 last year. . As detailed in supplemental materials from the company and management commentary, the acquisition costs of luxury vehicles were higher, and refurbishment costs were also higher, correlated with labor shortages.

See more: Vroom slips as vehicle pricing fails to make up for high acquisition costs

When units are low and prices are that high, something is bound to be offered. The fact that the Federal Reserve is raising rates means that the capital environment for these companies is getting tougher as well. (Carvana has already said it will seek to raise a few billion dollars through new stock offerings.)

We’ll know more later in the month, as Penske is ready to report his own results. But consumers seem less inclined to buy, or ditch, tires – and the industry is still striving to balance supply, demand and prices.

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