“You have to plan your infrastructure to support growth over the next year,” said Sharon Zackfia, who covers all three online used-vehicle sellers as an analyst at investment bank William Blair. “And up until January, I don’t think any of these companies were expecting the industry to get as tough as it did as quick as it did.”
Tougher conditions will require cutting back in some areas, as executives prioritize what they need to spend money on this year, she said.
To be sure, the economy is still growing rapidly, the job market is hot and interest rates remain low by historical standards. Public dealership groups, which like many retailers have been emphasizing used-vehicle operations while expanding their digital business, reported robust first-quarter earnings.
But the online retailers find themselves in worrisome territory. Whether they can contain costs and curb losses in the coming months will be crucial, analysts said.
Analysts who cover the companies told Automotive News that this period likely doesn’t represent the beginning of the end for the online used-vehicle retail segment. But for these companies, which have been trying to achieve scale that can give them a competitive advantage, it may be the end of the beginning.
After flexing their skills and vision during the pandemic, they now find themselves needing to take a more measured approach toward growth to preserve cash and build toward consistent profitability.
“This is going to be a long process of slowing down growth and managing costs better,” said Rajat Gupta, senior equity analyst at J.P. Morgan who covers auto retail, including Carvana, Vroom and Shift.
