Car sales move online and these car stocks are driving the change

Shaq is going to have to change his sales tactics in an online world. For the first time ever, millennials bought more cars than baby boomers and it looks like this trend is here to stay. The difference is  – they’re doing it online.

No showroom, no problem

Buying a car is a tiring process – five hours in a showroom, pushy salespeople, and a lot of paperwork. A number of startups tried to move the process online with mixed results – until the pandemic forced a need.

• ~40% of car buyers now prefer to purchase online, compared to 19% before the pandemic.
• 55% of dealers now offer financing online, up from 36% before the pandemic.

The US market for used cars sits at around $840b but less than 2% of sales are online – leaving plenty of the market share to be captured.

What’s keeping car manufacturers from selling online?

Online car retailers don’t have to play by the same rules as car manufacturers when it comes to selling – and its their trump card:

• Regulations prevent car manufacturers from selling cars directly – they must sell via dealerships.
• This prevents car manufacturers from selling their own products online – a big advantage for online retailers.

One company found a way to sidestep these regulations: Tesla (NASDAQ:TSLA) –  by arguing that the only way to explain the benefits of electric vehicles is to sell the vehicles themselves. This gave it the benefit of controlling its own distribution as opposed to a dealership model.

Investors: Keep your foot on the breaks

COVID fueled business for online car retailers but it hasn’t been a smooth ride for all:

• Shift (NASDAQ:SFT) and Vroom (NASDAQ:VRM) went public shortly after COVID, but returns have been flat.
• Carvana’s (NYSE:CVNA) sales jumped 42% in 2020 – nothing compared to the ~350% increase in its share price.

As the world reopens, it’s uncertain whether the demand for online car sales will remain the same. And with mixed returns, investors might want to keep their foot on the brakes before betting big on online retailers.

Looking forward:

Digital car sales is still in its infancy and the industry is worth keeping an eye on.