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

                              Nov 28, 2022 - Deadline to Comply With Safeguards Rule Extended
                              • Auto dealerships are getting a six-month extension to comply with new amendments to the Federal Trade Commission’s (FTC) Safeguards Rule, which requires non-banking financial institutions to develop, implement, and maintain a comprehensive security system to keep customer information safe. (Motor vehicle dealers constitute a “non-banking financial institution” for purposes of the FTC Rule.) The Revised Safeguards Rule applies to all customer information and includes any customers of other financial institutions that have shared information with a dealership. Customer information that’s protected under the Safeguards Rule applies to Personally Identifiable Financial Information (PIFI). PIFI includes not only social security numbers and credit card information, but all transactions that take place that might disclose a customer’s financial information. The new deadline for compliance is June 9, 2023.
                              • Dealerships that have spent the past two years focused on ensuring supply amid exceptionally strong consumer demand for vehicles, will face a radically different business environment in 2023, Auto Remarketing (AR) cautioned in November 2022. The “if you get it, it will move” mentality that has prevailed will no longer cut it as vehicle supply normalizes amid a darkening economic outlook for many consumers. Future sales will depend more on selling skills than merely putting cars on the lot. Players in the used-vehicle market will need to re-focus their efforts on ensuring that dealers secure the right vehicles based on accurate insights of what is actually moving and a more sophisticated understanding of evolving consumer demand, according to AR. Also, dealerships that have failed to embrace digital engagement channels to support the consumer buying journey, in whole or in part, will need to adjust their demand analysis and selling strategies.
                              • High prices, inflation, and rising interest rates are dampening consumer demand for used vehicles. Used-car retailer CarMax in September 2022 reported its profit dropped more than 50% in its second quarter (ended Aug. 31) as sales rose just 2%, the slowest pace since a rush in used-car purchases earlier in the pandemic, The Wall Street Journal reported. Fueled by federal stimulus money, consumers splurged on expensive used cars during the pandemic, driving double-digit sales growth at CarMax and its competitors. Now, consumers appear to be balking at higher prices for used vehicles. CarMax reported same-store sales in its used-car business saw a low single-digit decline in June and then fell sharply through the rest of the quarter as economic concerns weighed on customers, according to WSJ.
                              • The expansive climate, health and tax bill signed into law by President Biden in August 2022 includes $14.2 billion for tax credits for new and used all-electric and hybrid plug-in vehicles. The bill, dubbed the Inflation Reduction Act, provides incentives for purchasing emissions-free vehicles and for installing alternative fueling equipment like EV charging stations. Under the new law, a tax credit of up to $7,500 for buyers of new EVs is extended through 2032. The act also provides a tax credit worth a maximum of $4,000 for used models of these vehicles. The tax credits are expected to incentivize lower-income households to purchase EVs in the near future.
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