Deflation Rocks Used Car Market, Price Bubble Bursts: 5 Stocks Face Margin Squeeze Risks

The U.S. Consumer Price Index (CPI) recorded an annual inflation rate of 3.2% in July, rising from 3% in June but lower than expected 3.3%.

Despite the overall figure, there were substantial variations among the basket’s key components, but the significant decline in the price of second-hand vehicles and trucks stands out the most.

Used car and truck prices fell for the second month in a row in July, dropping 1.3% after a 0.5% dip in the previous month. In annual terms, prices are down 5.6%, the most in the core inflation’s basket, which excludes energy and food.

Second-hand cars and trucks had become a symbol of the inflationary hysteria that occurred during the pandemic due to the bottlenecks in the global supply chain.

Now that the bubble appears to have burst, these five companies’ margins and profitability may experience downward pressure in the coming months.

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5 Auto and Truck Dealership Stocks To Monitor

1. CarMax, Inc. KMX: CarMax is one of the leading used car retailers in the U.S., specializing in the sale of pre-owned vehicles and the wholesale operation of vehicle auctions. Shares of Carmax fell 0.3% in the minutes following the market open on Thursday.
2. AutoNation, Inc. AN: While primarily known as a new car dealership, AutoNation also sells used cars and trucks.
3. Lithia Motors, Inc. LAD: Lithia Motors is a significant player in the automotive retail industry, engaging in the operation of automotive franchises and retail of new and used vehicles. Lithia Motors was 0.9% higher at the open.
4. Carvana Co. CVNA: Carvana operates an e-commerce platform that allows customers to browse and purchase used vehicles online. Carvana is known for its unique business model that includes car vending machines. CVNA rose 1.8% after the CPI data.
5. Vroom Inc. VRM: Vroom is known for its online marketplace that allows customers to browse, purchase, and have used vehicles delivered directly to their door. Vroom opened 10% higher after tumbling over 30% on Wednesday.

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