The sudden rise in new-age car retailers for used cars has resulted in a quick and rather unexpected downturn. From high operating costs to overvaluation, here’s why this new wave of used car buying from used car retailers has flopped.
Understanding New Aged Car Retailers
In this new economic age, traditional business models for used cars have been reinvented In ways that offer consumers more flexibility in their shopping habits. Throughout the nation, this reinvention has been the rise of new-age car retailers.
Unlike your traditional used car lot, new-age car retailers like Carvana, Vroom, Shift, Carlotz, Kazoo, and Auto1 have ditched the traditional physical dealership and opted for simplified online platforms instead. This business model allowed these used car retailers to reach nationwide audiences. However, its massive exposure often led to unkept promises and poor customer service.
Over the past five to 10 years, these new-age car retailers have dominated the industry. But as of late, they’re doing quite the opposite. Here’s what you need to know about these not-so-disruptive used car retailers.
Why Are New Age Car Retailers on The Decline?
The sudden rise of new-age car retailers is now facing an equally sudden downfall. There’s no one specific reason why these retailers are failing but rather a collection of poor outcomes propelled by what many have called a flawed business model.
These retailers have pitched themselves as an alternative to traditionally used car buying. However, their comparable prices and iffy customer service have pushed consumers away. Retailers like Carvana promise a quick and convenient shopping experience, but over time this experience has proven to be less than adequate. Many shoppers complain of delayed delivery time, missing titles, and poor customer service.
High Operating Costs Cut Into Profits
These new-age car retailers might not have to deal with brick-and-mortar dealerships, but that doesn’t mean the cost of operation goes away. When you factor in storing vehicles, maintenance and repair, advertisement cost, and other fees, operating costs cut into what is already a small profit margin of the industry, an estimated 14.5%.
FOMO Catches Up To Investors
Investors are not piling on as they used to when these new-age retailers first emerged. Investors who bought into the appeal in the early days helped push the valuation of these unreputable and newly minted companies. Retailers like Carvana had a market cap valuation of $65 billion. Compare that to today’s $3 billion valuation. By and large, this sudden rise to the top was propped up by investors who had a fear of missing out. Until recently, it looks like that fear is costing investors big time.
Why Fix Something That Isn’t Broken
Dealers that specialize in used cars have often gotten a bad rap. But if the rise of new-age used car retailers has shown the economy anything, it’s that nothing can replace the one-on-one customer interaction used car dealers can provide.
The next time you start browsing for a used car, truck, or SUV, the best deal might be closer than you think — your local used car dealer.
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