When it comes to the red-hot inflation figures scaring the pants off Federal Reserve officials, soaring prices for used cars are right up at the top as a major culprit.
Starting this spring General Motors aims to help consumers struggling to afford buying a car in the current pricey market, while at the same time attempting to drag many of its Chevrolet, Buick, and GMC dealers into the modern era.
The idea is to offer buyers access to a joint supply of secondhand vehicles shared among participating dealers nationwide and its own portfolio of off-lease vehicles via a new harmonized digital platform called CarBravo. GM is hoping this will mitigate local market inefficiencies that make used cars more expensive and spare its retail partners the kind of prohibitively high investment in new IT systems that few can shoulder.
“It gives the customers what they’re asking for: a huge, expansive choice of vehicles to select from,” CarBravo senior manager Dan Ahearn told reporters on Tuesday.
Alongside the Omicron wave, surging inflation has been the big hot-button political issue facing the Fed, and much of it is coming from rising sticker prices for cars.
Production droughts spurred first by pandemic shutdowns in 2020 and then a global semiconductor shortage last year saw the supply of new vehicles reaching showrooms dry up. This forced consumers to turn to the secondhand market, driving up the cost of used cars.
Last month, the Bureau of Labor Statistics said the cost of secondhand cars had climbed more than 31% year on year in November. This put pressure on the overall basket of goods constituting the consumer price index, which rose 6.8% on a trailing 12-month basis, the largest annual increase since 1982.
According to GM, over 40 million vehicles, or roughly 70%, that were sold in the U.S. were pre-owned. Around 2.5 million come from its own nationwide network of its independent dealers, with a 60-40 split between GM cars and those built by its competitors.
GM says the new CarBravo website will offer consumers four key advantages: a broad selection of makes and models including cars from rivals, the convenience of shopping from home, transparency in both pricing and vehicle repair history, as well as peace of mind thanks to standard warranties.
Build, fire, and forget
There is a key reason why GM is joining forces with its U.S. dealers, who typically make much more money trading in secondhand cars rather than selling new ones.
“Used cars are incredibly important to bringing customers into our brands,” explained GM North America president Steve Carlisle.
The traditional model of independent third-party automobile retail, with large brick-and-mortar showrooms hidden away in the outlying industrial districts of town, is under heavy pressure.
Previously carmakers operated under a principle best described as “build, fire, and forget.” Once a vehicle left the factory gate, it effectively became the dealers’ problem. While they took the risk of large cash-draining inventories onto their books, retailers enjoyed the advantage of owning and cultivating the relationships with car buyers.
Then Tesla changed the industry by taking on the powerful and protectionist dealer lobby in the U.S. and pushing to change laws state-by-state in order to be able to sell vehicles directly to the customer.
The approach, also favored by upstart electric-vehicle manufacturer Rivian, is now catching on. In August, German premium brand Mercedes-Benz negotiated an agreement with all 98 of its domestic dealers that reduced them to “agents” effective next year, a strategy it then extended throughout much of Europe last month.
This experimental new method means that instead of competing with rival dealers or one another, they surrender their entrepreneurial independence in favor of simply advising on a car purchase. The automaker itself then owns all the inventory as well as the valuable trove of customer data.
Asked during the Tuesday press briefing whether CarBravo might cut into his margins, one participating Connecticut-based GM retailer said the platform would ensure both partners cooperate in generating sales leads.
Part of the allure, however, was also enabling access to online digital retail for those fellow dealers “who may have put their toe in the water…to people who haven’t even dreamt about it yet,” according to Ingersoll Auto owner Todd Ingersoll.
“It really gets them into this century of doing business,” he told reporters.
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