What worries me is KMX is Sears and CVNA is Amazon.

CVNA is surely having an impact on them, but how much? KMX claims to have approximately 13% of the used car market. If we use the revenue numbers of $28B for KMX and $18B for CVNA then the two of them combined make up about 21% of the total used car market. That leaves nearly 80% of the market spread across various franchise and independent dealers and the private market. There has been a lot of consolidation across the dealer landscape in the last 10 years so your typical car dealer today isn't the family owned dealership sponsoring the local little league baseball team. One source claims there are now 10 different ownership groups in the US that collectively own over 1900 combined locations.

If we look at it in that light, there are now potentially up to ten additional competitors that are exceeding or approaching the location scale of KMX and have the additional benefit of new car sales and parts/service revenues. Perhaps 10 years ago you had a dealership that leased 50 new cars and at lease end maybe they let 25 go to wholesale where KMX was able to profitably acquire and sell them. Now that same dealership is part of a 190+ store group across 5+ states and they are moving more/all of their lease/trade in volume through their channel and limiting KMX access to inventory. And those same dealers that have built scale likely have a much stronger retail finance process with access to third party lenders similar to what KMX has built over the years to better service the low credit score consumer.

Good discussion and pushing me more towards the bear case unfortunately.

Jeff

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