“You have to plan your infrastructure to support growth in the coming year,” said Sharon Zackfia, an analyst at investment bank William Blair covering all three used vehicle sellers online. “And until January, I don’t think any of these companies expected the industry to get as fast as it did.”
More difficult circumstances will require cutting back in some areas as executives prioritize what to spend money on this year, she said.
Certainly, the economy is still growing fast, the job market is hot and interest rates remain low historically. Public dealer groups, which like many retailers have placed an emphasis on the used vehicle business while expanding their digital business, reported robust Q1 results.
But the online retailers are in worrying territory. Whether they can control costs and contain losses in the coming months will be crucial, analysts say.
Analysts reporting on the companies said: Automotive News that this period is unlikely to be the beginning of the end for the used vehicle online segment. But for these companies, who have been trying to achieve scale that can give them a competitive advantage, this may be the end of the beginning.
Having honed their skills and vision during the pandemic, they now need to take a more deliberate approach to growth to conserve cash and build to consistent profitability.
“This is going to be a long process to slow growth and better manage costs,” said Rajat Gupta, senior equity analyst at JP Morgan, which covers auto retail businesses including Carvana, Vroom and Shift.