As previewed, Carvana reported very strong Q2 2024 results, with units up 33% to 101,440 and record profitability at $3.4K gross profit per unit. Moreover, the company expects its Q3 2024 to be even stronger. We believe Carvana's “superior customer experience”--including a wide selection of vehicles (37,000+), lower prices than traditional bricks-and-mortar dealers, streamlined purchase process after vehicle selection, and same-day car deliveries--as strong execution on its service as to why the brand was winning with consumers, especially more affluent consumers who were also considering buying new, but choosing Carvana for the greater value (i.e., more stable depreciation).
The +25K increase in units sold will contrast to incumbent CarMax, which should show little growth. As we described in our preview, we believe that Carvana is disrupting CarMax because of its contemporized sales offering and sales/financing process, and ease of taking delivery on a purchase. Additionally, the franchise dealers have pivoted to being fully used vehicle dealers, as well which creates more competition for CarMax on both the supply and demand sides of the business. These are squeezing CarMax into later model used vehicles (which are riskier to recondition) and a lower income consumer. That lower income consumer faces affordability challenges and for CarMax’s financing is a higher default risk.
AutoNation, which was similar in size to Carvana last year on the used side, experienced a -5% decline in units. Its unit profitability declined to $1,600 versus Carvana’s $3,400 (which was up $900 year-over-year). AutoNation, and the industry, were adversely impacted by the CDK outage in June. You can see this in traffic trends as well, below, and AutoNation shared that April and May new unit sales were up 5%, which puts June down around mid-teens. The outage as well affected used sales, used trade-ins, repair & maintenance, etc. That, in turn, backed up into auto part retailers' commercial business, which we wrote about last week. AutoNation expects to return to normal operations and inventory levels by the end of August. But within used vehicles, customers are trading down mightily, which likely reflects the high cost of financing and insurance for pricy models. It also means that some households can’t qualify for an auto loan that they would like to purchase from AutoNation or other dealers.
Penske Automotive Group reported new vehicles units up 2% on a comparable basis, whereas used declined 6%. Unit profitability on new fell -15% and used fell -3%. Penske reported that its services & parts business was up 10%, which we expected. As the franchise dealers like Penske, AutoNation, and others are experiencing pressure on their car sales part of the business, they are pushing harder to grow the repair & maintenance part of the business. As a reminder, for Penske new auto sales is only 30% of the enterprise's gross profits, whereas repair & maintenance is 40%. The business model for franchise dealers is changing as they try to lockdown the downstream revenues that come after a buyer purchases a vehicle, be that repair & maintenance, financing & insurance, etc. as well as capturing the eventual trade when the buyer is seeking a replacement vehicle, or another for their garage (see our story on Group 1 Automotive).
