Standalone used-car stores navigate ‘turbulent waters’ swimmingly

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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