Lenders, dealers plant foot in future with online used-vehicle retailers

The direction of automotive retailing is up for debate, but considering recent moves by lenders and dealerships, industry leaders are placing their bets on the used-vehicle space.

Last week, for example, Ally Financial hatched an agreement to provide up to $2.3 billion in financing for Carvana's retail contracts and inventory needs over the next year.

It marks the third year of Ally's financing agreements with Carvana.

The lender will provide up to $1.25 billion for bulk purchases and a $350 million warehouse credit facility. A $650 million floorplan credit line includes a two-year commitment and represents an increase of $300 million over the existing credit line.

In the first two years of the financing agreement, Ally committed to provide up to $2 billion in financing for retail contracts from Carvana. The most recent agreement also includes continued vehicle sourcing through Ally's SmartAuction platform.

And the Carvana partnership is just one of many forays into used-vehicle e-commerce Ally has established over the past few years.

Public dealership groups AutoNation Inc. and Lithia Motors Inc. also have made investments in the online used-vehicle retail space.

AutoNation invested $50 million in Vroom Inc., giving it a 7 percent stake in the company, and Lithia invested $54 million in startup Shift Technologies, becoming Shift's largest shareholder.

As many dealers have said, the new-vehicle business is the only department they can't fully control. Automakers largely dictate the dynamic of the new-vehicle market, dealers say. And why wouldn't lenders and dealership groups have an eye toward the used-vehicle space as new-vehicle profit margins continue to tighten and new-car and new-truck prices continue to rise? The online used-retail space is blossoming and could become a vital business for auto retail and finance companies in the future.

Working with companies that already have used-only pillars in place may be just what lenders and dealers need -- both to soften the blow of shrinking new-vehicle margins and secure their footing in the online used-vehicle market.

You can reach Hannah Lutz at hlutz@crain.com -- Follow Hannah on Twitter: @hm_lutz

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