There is certainly no love lost between franchise dealers, independents, and Carvana. Carvana has been outbidding these two for used cars at auction for quite a while. And, as we all know, new cars are far and few between, so dealers are increasingly reliant on the acquisition of used vehicles through trade-ins and auctions. This explains why marketing messages have shifted from purely selling vehicles to, “we’ll buy your car, even if you don’t buy ours.”

Not only is Carvana outbidding dealers for used cars at auction, but they also bid against themselves! It’s hard to believe this isn’t a play for them to corner the used car market at auction while also having more inventory available and gaining market share. Carvana isn't doing anything wrong. You might argue that they are driving shareholder value and providing consumers with more competition amongst retailers.  

Recently, Carvana acquired ADESA for $2.2 Billion! ADESA is the second largest auction company, after Cox’s Manheim. Why would they do that? Well, one possibility is that they now have “pick of the litter.” The second is that it lowers their reconditioning costs. And last, but not least, it gives them a larger inventory to sell to their customers.

Franchise and independent dealers are already talking about shifting away from ADESA and towards Manheim for used car inventory acquisition for the simple reason that they do not want to support Carvana and choose to auction their vehicles elsewhere.

Franchise dealers already have a lack of new or used vehicles to sell. And independents are competing for the used cars because they ONLY sell them. Taking half of the used car inventory (potentially) and shifting it to Manheim, will make it more competitive for used car acquisition and more expensive per unit.

If the current inventory challenges aren’t enough, we’re now facing fallout from the war in Ukraine. The situation in Russia versus Ukraine will only hurt new car manufacturing as Ukraine produces many of the chips for new cars using Russian fuel. That, in and of itself, will drive the prices of used vehicles at auction even higher.

The biggest factor is that if Carvana is utilizing ADESA to increase its reconditioning abilities, while fewer of these used cars are purchased by franchise dealers, that can only result in consumers buying more vehicles with unrepaired recalls. That’s always been the case with anyone selling off-brand vehicles. Let’s not pretend that most franchise dealers are not doing the same with their off-brand inventory. The only difference is that Carvana has just made a move to acquire a larger segment of that used car inventory. While our industry is facing inventory shortages, the ability to remedy recalls requires efficiency. Franchise, independent, or Carvana, let's not kid ourselves – inventory is gone faster than the ability to acquire it. 

At the very minimum, brands tend to favor their own brand at auction. Why? Because then they can certify them through the manufacturer and sell them for more. The fight for used vehicles is only going to increase. As Carvana's inventory increases, franchise and independent inventory decreases. Used car prices as a whole have increased exponentially. But a franchise dealer who can offer a certified vehicle would be able to command even more.

Unless Carvana buys them all.