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whisky_in_your_water t1_j27scq8 wrote

> major market shift

That really is the main unknown here. The used car market was pretty good prior to COVID, but disruptions in supply chain for new cars saw drastically reduced supply. So it's not that analysts were wrong, it's just that analysts didn't foresee the COVID pandemic and the global economic response that ensued.

As rates rise, parts become more available, and employment outlook gets more uncertain, people will buy fewer cars. That's just how demand works. So dealerships are going to be forced to either cut prices or sit on inventory.

> Hertz

With a rising market, there's a lot of demand to soak up that supply. When there isn't enough new stock coming in, people will buy what's available.

We're in a falling market, so if Carvana dumps a bunch of supply, it's absolutely going to shake things up. Dealerships would be able to buy cars at a steep discount, so they can afford to take losses on some of their inventory if they make profit from those liquidated cars. If your basis is 10% more than market value and you can buy cars at 20% under market value, you'll still make a profit if you sell at a 1:1 ratio, or break even if you sell 2:1 old vs new stock.

I'm only worried about dealerships if demand dries up before they can get through the old stock (e.g. unemployment jumps). As long as we continue this measured market correction where unemployment remains low, I think they'll be fine, they'll just make their money more from financing than sales price.