The Case for Used Autos
RECENT THOUGHTS
The other day I came across a statistic that there are about 250 million vehicles in the US and approximately 5% (or 12.5 million) are junked every year. Current auto sales show we are only producing a little above 9 million a year. Assuming the demand for vehicles remains the same, this 3-3.5 million shortfall means consumers are going to be relying more and more on used cars. Of course, Americans could decide to use more public transportation or rid of their 2nd car, but this gap is so large, the case for increased usage of used cars is pretty strong. Even with a consumer slowdown, consumers seeking new vehicles may turn to used cars instead.
We have a small investment in CarMax (KMX), the nation’s largest used car chain with 100 retail superstores. Because of their sheer size, they benefit from scale and really understand how to price their vehicles. Even still, they only represent 2-3% of a very fragmented industry. So, there is still plenty of growth opportunity.
They’re business model has appeal. They’re known for their no-haggle environment with sales reps who receive the same commission regardless of the vehicle, thus, they focus more on the consumers’ needs. Hopefully, this customer experience will bring loyalty and repeat sales. One of our concerns is their business model can be copied by a potential competitor, however, we believe they have a leg up with their brand recognition.