Text | U.S. Stock Research Agency
Recently, GM announced plans to launch CarBravo, a large online used car site in the spring, which will provide car buyers with access to hundreds of thousands of used cars, connecting used car buyers with companies and dealers.
Due to supply chain bottlenecks and surges in demand, the second-hand car market in the United States in 2021 can be described as hot, and used car dealers such as Carvana and CarMax have also received a lot of attention from capital. Under the hot second-hand car market, the veteran traditional car manufacturer GM hopes to occupy a place in the second-hand car business.
U.S. used car prices soared 50 percent, "outperforming" the S&P 500
According to data released on January 12, the US CPI in 2021 hit the largest increase in nearly 40 years, and the CPI rose by 0.5% month-on-month in December, exceeding expectations. Previously, economists surveyed expected the median CPI for December to rise 7% year-on-year and 0.4% month-on-month.
The data showed that the CPI's monthly rate of increase was driven by used car and truck prices, up 3.5 percent, the biggest increase since Last June, when used car prices rose more than 10 percent.
James Bianco, president of research firm Bianco Research, said, "If you're wondering what the best investment you'll have in 2021 is that used car parked in your garage or driveway, CNBC reported. ”
Over the past year, U.S. used car prices have surged nearly 50 percent, while the S&P 500 has gained 26.89 percent. The Manheim Index, which measures trends in used car prices, shows that the used car price index remains high.
There are two factors that are bullish on the US used car market:
The first factor is that people can't afford to buy a new car because of a shortage of chips. According to statistics, the number of new cars produced in the United States this year is about 1 million, which is 1.8 million fewer than last year and 2.5 million fewer than in 2019.
As a result, nearly 90% of new cars sell at prices close to or above the manufacturer's recommended retail price, compared to just 12% in December 2019.
In addition to supply and demand factors, some speculative factors have also contributed to the rise in the price of used cars. Bianco said used cars will be more expensive because speculators will scramble to buy them once there is stock.
According to Edmunds.com data, the average price of used cars in the United States in November was $29,011, and there was no downward trend.
Auto market research firm J.D. Power said prices are expected to remain firm next year. In order to buy a car, consumers not only wait, but sometimes even have to fly to buy it.
As a traditional automaker, GM recently announced plans for a "new way to buy used cars," which will launch an online used car platform called CarBravo this spring.
What can CarBravo do?
CarBravo is an online platform that will integrate used car inventory and non-leased vehicles from its dealer network, offering customers the option of shopping online, at a dealership, or a combination of both.
GM said CarBravo aims to give customers who buy used cars more opportunities to access large amounts of inventory.
The service is also designed to provide a better shopping experience and exclusive ownership benefits that can only be obtained through CarBravo. GM will enhance the shopping, buying, and ownership experience for used car customers with large amounts of inventory, omnichannel shopping experience, and exclusive ownership rights.
GM said the CarBravo website will provide a simple shopping interface with clear dealer pricing, vehicle history reports and a 360-degree view of the vehicle.
All CarBravo vehicles will be inspected and refurbished to meet the standards set by General Motors. Even if they don't plan to buy a vehicle through CarBravo, customers can get a guaranteed online offer from the industry-standard black book to buy their vehicle.
Steve Carlisle, executive vice president of GM and president of GM North America, said: "CarBravo will provide customers with more options and channels to purchase the significantly increased inventory of GM used cars. Importantly, the program's features will also be available on used cars that are not general motors. ”
Dealers can begin registering as affiliates of CarBravo immediately, and GM will register an estimated 3,800 U.S. dealers with CarBravo in the coming months.
Consumers can order cars online from participating GM dealers, or find a nearby GM dealership to shop in person, or take a test drive at home and get home delivery at participating dealers.
"We know that used cars are very important to bring customers into our brand," Carlisle said at a media conference. "To continue to build loyalty and business opportunities for us and our dealers, CarBravo is a new gateway to new customers."
What are the considerations for entering the used car market?
Carlisle said GM created CarBravo because nearly 70 percent of the vehicles it sells so far are used. GM, on the other hand, sees possible additional revenue opportunities among customers who register with OnStar and use dealerships to provide services.
"All the revenue we get from the new car after sale, we also want to get it through used cars," Carlisle said. "This has a direct impact on the bottom line of revenue and gives us the opportunity to increase the residual value."
Over the past five years, the used car market has been growing, spawning dealers that only sell used cars, such as Carvana, CarMax, etc., and GM hopes to compete directly with these used car companies through CarBravo.
CarMax, which has seen its share price rise 37.87% over the past year, is the nation's largest buyer and seller of used cars with a nationwide network of more than 200 stores with distribution capacity and vehicle offers. But since GM's announcement, KMX's stock price has fallen more than 3 percent.
Baird believes the market may be overreacting, with analyst Craig Kennison noting that there is plenty of room for the used car industry to grow for many players, with CarMax as an industry leader with only about 3.5 percent of the market share.
It seems to be less vulnerable to market shocks than the new car market. According to the International Finance News, in 2020, a total of 14.46 million new domestic cars were sold in the United States, and the sales volume of used cars reached 39.3 million, nearly three times the sales of new cars. Cox Motor Company predicts that U.S. used car sales will reach 21.5 million in 2021, far exceeding new car sales.
In addition, used cars in the U.S. are still a fragmented market for now, with thousands of dealers offering the same service, with the top 100 accounting for less than 9 percent of the market.
It may not be difficult to understand GM's motivation for launching CarBravo. Now, CarBravo is a new cake breaker, while also competing head-on with the head used car platform. Jim Lyski, carmax's executive vice president and chief marketing officer, said: "While we are still learning about GM's newly announced services, it is difficult for them to do. They need to build the capabilities to deliver the seamless online-to-in-store experience that customers demand and do so across all resellers. If they get it done, it will be beneficial. ”
When will the inflection point of used car prices arrive?
However, the price of used cars in the US market is now high, and consumers and investors believe that like the high valuation of electric vehicles, there is a risk of collapse at any time.
Carvana's stock price, which is based entirely on an online model, has seen ups and downs over the past year, with its share price falling from its August high of $376.83 to $161.25 now. On the one hand, it shows the market chase given by the convenience experience of online purchases, and on the other hand, it also reveals the essence of no profit and cash consumption after excessive valuation.
Kimberly Palmer, a personal finance expert at NerdWallet, said that to buy a used car and pay for other necessities, a family must take home about $75,000 a year before taxes. The Census Bureau said the median pre-tax household income in the United States in 2020 was $67,521.
This is likely to continue until 2023 until supply returns to 2 million or around 2.5 million units, and once new car prices ease, the price of used cars will also fall.
A recent report from KPMG, the big four accounting giants, also outlines four possible trajectories for used car prices, all of which show that the used car market will return to price equilibrium between October 2022 and October 2023.
James Bianco, president of the research institute Bianco Research, called out: Assets that are constantly losing should not rise, let alone rise by 50% a year. The performance seen in the used car market now is likely to be a bubble.
"Wooden Sister" said directly in the monthly market update released on Tuesday that she expects the US used car market to plummet in the coming year. She believes that the valuation of the used car market will fall sharply in the coming year until 2023, and she will not be surprised if she sees a "bloodbath of the used car market".
However, even after price equilibrium, the supply of vehicles will become tight, as the traditional sources of used cars – from leases and cars trade-in or sold by rental companies – have essentially dried up.
Currently, GM says dealer inventories continue to have 400,000 used cars in their inventory, while GM and GM Financial have an additional 500,000 used cars in stock each year.
GM's large inventory at dealers across the U.S. could prove favorable even if used car prices fall by 30 percent, and Carlisle said GM will eventually use the platform to offer new and electric vehicles.
The entire market has returned to rationality, and perhaps for GM, that is even more good news.
epilogue
At present, CarBravo has a universal brand effect and a mature network of suppliers, at the same time, the barriers to entry of online business are lower, if CarBravo can build a strong online influence of omni-channel model to make consumers feel better, then GM will benefit from a larger scale effect.
However, as a newcomer to the online used car industry, how this new business of GM will materialize in the coming years remains to be determined.