Vroom in the Fast Lane of the Used Car Market
The used car market has been largely untouched by digital innovation, creating a big opportunity for Vroom, an online-focused used car retailer that allows customers to purchase a vehicle online and have it delivered to their home.
First inning of disruption: Used vehicles represent the largest consumer product category in the United States, with sales totaling $841billion in 2019. This is larger than many other pillars of U.S. retail such as Grocery ($695 billion), New Auto ($636 billion), Apparel ($270 billion) and Furniture ($117 billion). Despite the size of the market, used auto ecommerce sales penetration is estimated at about 0.9%, versus broader US retail eCommerce penetration of 16%.
Used car market in the fast lane: Used vehicle sales have outpaced new vehicle sales in each of the last four years, as consumers gravitate towards lower prices. The used vehicle market is about 2.4x larger than the new vehicle market and the fragmented nature of the industry creates an opportunity for ecommerce platforms to steal a significant portion of the market share from national dealers, according to Stifel analyst Scott Devitt. He notes that there is no dominant industry leader since the largest dealer accounts for less than 2% of overall unit volume. Furthermore, the top 100 dealerships in the U.S. sold 2.8 million used retail units in 2018, accounting for about 7.0% market share, according to data cited by Wedbush analyst Seth Basham.
Analyst initiations: On Monday morning, Stifel Initiated coverage of Vroom with a BUY rating and a $65 target price. Wedbush initiated coverage on Vroom with an OUTPERFORM rating and $64 target price.
Stifel: “As the rising number two online dealer in the used automotive space, we see Vroom as well positioned to continue taking market share from less sophisticated dealers and private transactions as changing consumer preferences shift a greater share of spending in the category online.”
Wedbush: “VRM has built a sophisticated data-driven, customer-centric integrated online used car retail business model that is asset-light and very scalable, positioning it for rapid growth in the massive and highly fragmented used car industry.”
