I was just "one of those guys."
After riding a 12-year Nissan Infinity into the ground and shelling out $600 recently for what seemed like an easy radio repair, I decided it was time to start shopping for a newer car. So with some careful reading and watching of reviews online, I set my sights on a shockingly red 2014 Dodge Challenger with giant black wheels and blacked-out windows. In true dumb-guy form, I went to buy the modern-day muscle car on the busy July 4 weekend, when I knew I would be at a disadvantage vs. the slick salesperson (and you know what else messed it up ¿ the sales guys Googled me and starting asking me about stocks and TV). All in all, a decent buying experience. Though the car wasn't detailed up to my extremely high standards, it's surprisingly not my menacing newer car that captured my imagination.
Rather, it was:
- The packed dealership while it took almost three days to drive the car off the dealer's lot.
- The hearty sticker prices on many of the used cars on the lot, and the fact the salesman didn't budge a ton on my sticker price. We just haggled on the trade-in value and financing.
- The fact that a new Dodge Hellcat ¿ a limited edition 807-horsepower beast that is this era's collectible muscle car ¿ is selling about $21,000 above its $72,000 list price due to voracious demand. So yes, it costs about $100,000 to get this out the door.
- The $140,000 used Dodge Viper sitting on the sales floor with a giant "SOLD" stick on it. One guy told me it was bought over the internet.
- The particular dealership I picked up my Dodge is surrounded by other dealerships, which sure looked crowded to me.
Yes, I know this personal experience is just one point in time, but it really left me wondering if there isn't a play on the used-car market here. I have been rather bearish on the auto industry this year, specifically the new-car names such as AutoNation (AN) and Ford (F). New-car sales are near a plateau, which was clearly on display in the industry's June sales figure. Dare I say it, it was even reflected in the major second-quarter delivery miss from Tesla Motors (TSLA), which was its second straight quarterly shortfall. The company blames its production ramp, but I think general consumer uncertainty ¿ mostly related to the election ¿ is a component as well.
I think it will continue to be a favorable used-car market this year as consumers are enticed by values on tech¿heavy off-lease trade-ins. The upgrade of the driving experience for me compared to a 2004 Infinity has been eye-popping. There is also less sticker shock in an election season relative to a new car. So far, the industry is performing well.
According to TrueCar (TRUE), there were likely more than 3.24 million used-vehicle sales in June. If achieved, it would represent a solid 5.5% increase from the prior year. In the first five months of 2016, franchised dealers sold approximately 5.3 million used vehicles, while independents moved nearly 5 million used units, according to NADA figures, which indeed is a good number from my viewpoint. Certified pre-owned cars ¿ which go a very thorough inspection process and therefore sell for more ¿ have seen especially solid sales so far this year. In other words, the demand has been there for cars. It has just been for the used variety.
The best way to play the used-car market is CarMax (KMX). Does the company's recent financials scream that it's a can't-miss opportunity? Not exactly. CarMax's comparable used-car sales, as measured in terms of units sold, continued to slow in the first quarter, inching forward 0.2%. Used-car prices were flat from a year ago at $19,858, while wholesale-vehicle prices were down 3% to $5,268.
But I think the market is being too nervous on the near-term prospects for CarMax, and I wouldn't be surprised if the second quarter is far from the disaster investors have braced for. They are clearly apprehensive, with the stock down 5% in past month. Moreover, I like the company's big push in opening new stores in tech-job areas (where price never matters) such as San Francisco and Seattle. The company plans to add 17 new stores this year, followed by another 15 next year.
On a final note, shout out to the folks at Dodge (FCAU), a subsidiary of Fiat Chrysler: you have done a great job marketing to millennial men that grew up with Hot Wheel cars, and to 50-year-old guys trying to relive their youth.
