Is Online Car Buying Dead?

Is Online Car Buying Dead? There are some recent casualties.

It seemed like the ultimate convenience and a great way to buy a car during COVID. The fully online car buying experience was a revolutionary no-haggle, no-hassle way to buy a car without leaving your home. But soon after the post-pandemic return to normalcy, the attractiveness seemed to fade and online used car giants, Carvana, Shift and Vroom suffered a dramatic turn in fortunes.

Binge buying when new vehicle production was halted meant that these companies paid record prices for vehicles and were stuck as used car prices began to fall. This week, Vroom announced plans to pull the plug on its e-commerce operations entirely. The company will suspend used vehicle transactions through vroom.com, according to a news release. Vroom also indicated it will sell its current used vehicle inventory through wholesale channels and stop purchasing any additional vehicles. Further, the company said it would reduce its work force by 90%, roughly 800 employees. This bleak report caused Vroom shares to plummet by 51% overnight to a mere $0.25.

Late last year, Shift Technologies, another online used-vehicle retailer, filed for chapter 11 bankruptcy protection, another victim of overbuying at record prices.

So, at this point only Carvana remains in the online car business and the company has demonstrated significant progress on their path to profitability. In Q3 2023 for example, Carvana sold over 80,000 retail vehicles with an average gross profit per unit of $5,952, and posted a positive adjusted EBITDA margin in both Q2 and Q3 of 2023.

With used vehicle values continuing to return to pre-pandemic levels, can Carvana continue this performance? Being the sole surviving business in the online used-car market will certainly help, as will falling interest rates; but new-car sales and record trade-in volume at traditional dealerships may be a stiff headwind for the last remaining online car retailer.