1. What makes you think car dealerships run on thin margins?
I don't know what typical margins are, but the owners seem to do pretty well. This may be despite low margins. But I'm reluctant to accept your claim without proof.
2. What qualifies as low margin? 1%? 10%?
3. It is entirely possible to make billions on low margins.
A dealer that makes $1000 per car can make $1 billion profit by selling 1 million cars. If the average car sells for $15k, a $1k profit would be a < 7% margin. See question 2 about low margins.
A little mom-and-pop lot in a very small town can sell 5-10 cars per month. It doesn't seem unreasonable for a huge national online dealership to sell 1 million cars.
4. What timeframe are we talking? Five years?
Carmax financials say they do more than $5 billion in a single quarter.
Used car auction prices are basically fixed. 80-90% of all cars are bought in auctions run by just one company (Cox). Sale prices low/high is usually in a range of about $100.
As supply costs are so thoroughly controlled, the biggest way to increase margins is increasing prices either directly or through service contracts and/or financing. There is a slight economy of scale to owning fleets of car transports and the like, but the actual competitive advantage of those things over smaller dealerships is pretty minimal and I don't doubt is completely cancelled out by the extra administration overhead smaller dealerships don't have.
Carmax used to mark up cars $2000 over auction price. That isn't pure profit though. They have to pay to transport the cars from the auction to their dealership. They have to pay for the building/lot and administration. They have to pay for any necessary repairs. They have to pay interest on the vehicles as they are leveraged on the vehicles they buy (one reason they resell so fast, but may lose money that must also be made up elsewhere). Most significantly, they have to pay the sales team.
By the time you're done, they probably make more like $100 or less per vehicle directly and the rest indirectly through warranties, service deals, and loans.
not the parent, but they probably meant "compared to typical vc-funded startup expected margins". most faangs don't need to ship tons of steel to anybody and their margins are around 25%.
can you disrupt used cars given all the logistics of the physical world? maybe, I don't know, but people here report both carmax and carvana having severe business issues, why?
Don't disagree with the sentiment that selling physical products is a lot more intensive than a SaaS app, but to this point, "people here report both carmax and carvana having severe business issues" is definitely due to the whiplash in the used car business due to COVID. That is, both new and used car prices skyrocketed due to supply chain issues, so CarMax and Carvana had to pay a ton for their inventory. Now car prices are "normalizing", so both of these companies have high priced inventory that they now need to sell in a low(er) priced market.
1. What makes you think car dealerships run on thin margins?
I don't know what typical margins are, but the owners seem to do pretty well. This may be despite low margins. But I'm reluctant to accept your claim without proof.
2. What qualifies as low margin? 1%? 10%?
3. It is entirely possible to make billions on low margins.
A dealer that makes $1000 per car can make $1 billion profit by selling 1 million cars. If the average car sells for $15k, a $1k profit would be a < 7% margin. See question 2 about low margins.
A little mom-and-pop lot in a very small town can sell 5-10 cars per month. It doesn't seem unreasonable for a huge national online dealership to sell 1 million cars.
4. What timeframe are we talking? Five years?
Carmax financials say they do more than $5 billion in a single quarter.