The auto industry changes course

Just as gas prices are easing up, car sales are hitting a rough patch.

BMW shares skidded 3.99% today after the German luxury automaker slashed its profit margin to just 1% (down from 6%) this year due a slowdown in Chinese demand and lingering aftershocks from the Middle East conflict. JPMorgan analyst Jose Asumendi called the “radical earnings cut” a “wake-up call for the auto industry,” raising doubts about whether making premium cars in Europe to export to China was a viable strategy anymore.

BMW’s not the only one struggling to map a new route. Used-car king CarMax beat Q1 expectations on earnings and revenue. But its stock still slid 9%, after the company warned about pressure on margins after new CEO Keith Barr teased turnaround plans to “reimagine” its business but held out on details. Add to that the Fed keeping rates elevated, which stalls car loans and purchases, and it’s no surprise investors are impatient.

Carvana’s new playground

Meanwhile, CarMax rival Carvana is no longer just selling clunkers from massive vending machines. Over the past year, the company has snapped up seven new-car dealerships that primarily sell Stellantis brands Chrysler, Dodge, Jeep, and Ram. And not a moment too soon, since Stellantis has been a wreck of collapsing sales and cratering stock. But with Carvana behind the wheel, things seem to be turning around. In its Casa Grande, AZ store—which used to sell 30 to 50 vehicles per month—Carvana jacked up sales to 700 in May, making it Stellantis’s bestselling store nationwide. One breakout store doesn’t prove that the formula travels, but it’s a start.

Carvana’s Dallas store rolled out a Disney-esque “playground” where customers test-drive new vehicles. And instead of having salesmen breathe down their neck and haggle on price, customers simply scan a QR code, buy online, and get the car delivered to their door.

New cars represent just a sliver of Carvana’s business, but it could be one of “the most disruptive forces that auto retailing has seen in the US market in decades,” automotive analyst John Murphy told CNBC. That’s a big claim, given that the company built its name on not needing physical stores at all. Not to mention, new-car sales are far more regulated than the used-car market, where almost anything goes—meaning Carvana’s model may be harder to scale than it looks. But one survey by Cox Automotive found that customers dig Carvana’s hybrid approach of in-store road-tests and online ordering. Car salesmen: time to start looking for a new gig.—JD