Consider the landscape for used-only vehicle retailers just three years ago.
Vroom, which launched its initial public offering in June 2020, made its Super Bowl advertising debut in February 2021, followed by a return trip a year later alongside rival Carvana, which joined the commercial action for Super Bowl XLI.
Shift announced plans to go public through a special purpose acquisition company (or “SPAC”) in June 2020, a move that was completed in October of that year. Car Lotz, a “retail remarketing” platform, would announce its own SPAC plans that same October.
Momentum was strong, amid a pandemic-driven white-hot market for pre-owned cars.
Some three years later, however, neither Vroom, Shift nor Car Lotz (the latter two of which eventually merged) operate as ecommerce marketplaces.
You could argue that the retail automotive, especially used cars, is a difficult industry to break into, and you’d be right.
But even some of the largest incumbents — publicly traded dealership groups with national or even international footprints — are not immune to the volatile post-pandemic used-car market.
Certainly prior to COVID, there were used-only formats from the public dealer groups that didn’t pan out. And the current iteration of the used-only stores has seen retailers oscillate between pause and growth modes. And they’ve dealt with perhaps the most unsteady period for pre-owned cars in recent history.
The last 18 months have been “pretty brutal” for the used-car market, says Erin Kerrigan, founder and managing director of Kerrigan Advisors, which serves as a sell-side advisor in auto retail M&A.
“I think what drove them to open (standalone used-car stores) and what drove dealers to be excited about that is, inherently in the used-car business, you don’t have to report to this OEM that says … you have spend millions of dollars on a facility,” Kerrigan said during an interview at the J.D. Power Auto Summit ahead of NADA Show 2024 earlier this month in Las Vegas.
“What’s unattractive about these standalone used-car market (stores) is that you live and die by the used-car market,” she said. “And you don’t have that diversified business model under that rooftop.
“I do think that that lesson is being relearned. I think it’s been learned a few times but once again we’re reminded that there are some draw backs to pure-play used-car businesses,” Kerrigan said. “And I suspect, as you can see, by what happened to Vroom and Shift — those businesses didn’t make it, because they were exclusively exposed to that side of auto retail industry. And really, the beauty of the new-car business model is it has the used-car business embedded in it.”
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Kerrigan Advisors is the premier sell-side advisor and thought partner to auto dealers nationwide. The firm advises the industry's leading dealership groups, enhancing value through the lifecycle of growing, operating and, when the time is right, selling their businesses. Kerrigan Advisors has represented some of auto retail's largest transactions and advised more of the largest dealership groups in the US than any other buy/sell firm in the industry. Led by a team of veteran industry experts with backgrounds in investment banking, private equity, accounting, finance and real estate, the firm does not take listings, rather they develop a customized approach for each client to achieve their personal and financial goals. In addition to Kerrigan Advisors' sell-side advisory and capital raising services, the firm also provides a suite of consulting services including growth strategy, market valuation assessments, capital allocation, transactional due diligence, open point proposals, operational improvement and real estate due diligence.
Kerrigan Advisors monitors conditions in the buy/sell market and publishes an in-depth analysis each quarter in The Blue Sky Report®, which includes Kerrigan Advisors' signature blue sky charts, multiples, and analysis for each franchise in the luxury and non-luxury segments.—To download a preview of the report, click here.—The firm also releases monthly The Kerrigan Index™ composed of the seven publicly traded auto retail companies with operations focused on the US market. The Kerrigan Auto Retail Index is designed to track dealership valuation trends, while also providing key insights into factors influencing auto retail.—To access The Kerrigan Index™, click here.—To read the—2023 Kerrigan OEM Survey, click here.—Kerrigan Advisors also is the co-author of NADA's Guide to Buying and Selling a Dealership.
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