Used Car Dealers

Industry Profile Report

Dive Deep into the industry with a 25+ page industry report (pdf format) including the following chapters

Industry Overview Current Conditions, Industry Structure, How Firms Operate, Industry Trends, Credit Underwriting & Risks, and Industry Forecast.

Call Preparation Call Prep Questions, Industry Terms, and Weblinks.

Financial Insights Working Capital, Capital Financing, Business Valuation, and Financial Benchmarks.

Industry Profile Excerpts

Industry Overview

The 24,000 used car dealers in the US sell pre-owned vehicles purchased from the general public and other sources. Unlike new car dealers, used car dealers generate little revenue from maintenance and repair services. Most firms outsource service agreements to a third party.

High Cost of Inventory

The used car dealer industry is capital intensive with most firms requiring outside funding to build inventory, which accounts for 58% to 63% of total assets.

Shift to Digital

The COVID pandemic accelerated the shift to digital transactions in the used vehicle dealer industry.

Industry size & Structure

The average used car dealer operates out of a single location, employs six to seven workers, and generates just over $4 million annually.

    • The used car dealer industry consists of about 24,000 firms that employ over 150,000 workers and generate over $100 billion annually.
    • The industry is concentrated at the top and fragmented at the bottom; the top four companies account for about 20% of industry revenue.
    • Large firms include CarMax, DriveTime, and America’s Car-Mart. AutoNation and Penske Automotive Group also have used car dealerships.
                              Industry Forecast
                              Used Car Dealers Industry Growth
                              Source: Vertical IQ and Inforum

                              Recent Developments

                              Mar 24, 2023 - Higher Demand for Manual Cars
                              • Sales of stick shifts are on the rise in 2023, accounting for 1.7% of new car sales compared to 1.2% in 2022 and 0.9% in 2021, according to data from JD Power in the Wall Street Journal. Automotive shopping website Autotrader also reported a 13% increase in page views for new manual cars in 2023 compared to this time a year ago. Car manufacturers are adding more models with stick shifts to their lineups to accommodate growing demand. For example, Mini introduced four new manual models in March 2023. Of the five versions of the MX-5 Miata by Mazda Motor Corp., three are manual transmissions. Younger drivers are driving the demand; younger consumers accounted for more than half who bought manual Integras (between 18 and 46 years old) and a quarter of those who bought manual Miatas (between 18 and 35 years old).
                              • Consumer confidence levels declined in February 2023 for the second consecutive month, according to data from The Conference Board. The Conference Board’s consumer confidence index fell to 102.9 in February 2023 from 106 in January 2023, as high prices and rising interest rates affected consumers’ willingness to spend. According to Ataman Ozyildirim, a senior director of economics at The Conference Board, “Consumer confidence declined again in February. The decrease reflected large drops in confidence for households aged 35 to 54 and for households earning $35,000 or more.” Plans to purchase homes, vehicles, and appliances have cooled, in addition to a drop in vacation intentions, per Ozyildirim.
                              • Used retail car sales in the US climbed by 13% in February 2023 compared to February 2022, according to mid-month Manheim Used Vehicle Value Index data reported in Dashboard by NIADA. The strong sales have resulted in lower inventory levels. Listings are down 13% from a year ago, and supply is at 44 days, which is lower than at any point in 2022. Retail used car prices fell by $1,500 at the beginning of 2023; the January average retail price was $27,000. Lower retail prices are driving the increase in sales. According to Jeremy Robb, senior director of economic and industry insights at Cox Automotive, “This stirred increased demand from the retail buyer base, as some consumers had put off buying due to higher interest rates and increased economic uncertainty.”
                              • Lexus ranked the highest in overall vehicle dependability, scoring 133 problems per 100 vehicles (PP100), according to the JD Power 2023 US Vehicle Dependability Study reported in According to the study, the industry average was 186 problems per 100 vehicles. The study examined how 2020 model-year vehicles performed related to quality, component replacement, and appeal. Other high-ranking premium brands for vehicle dependability were Genesis (144 PP100), Cadillac (173 PP100), and BMW (184 PP100). For the mass market segment, Kia ranked the highest with a 152 PP100, followed by Buick (159 PP100), Chevrolet (162 PP100), Mitsubishi (167 PP100), and Toyota (168 PP100). According to Jonathan Banks, VP and general manager of vehicle valuation at JD Power, “The used-vehicle market has helped sustain dealers’ profitability in the past couple of years, but they need to know which vehicles to have on their lots. Having vehicles with strong dependability scores will nurture a positive brand perception and drive foot traffic.”
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