CarMax, Inc. (KMX), America’s Car-Mart, Inc. (CRMT), AutoNation, Inc. (AN): The Changing Face of the Used Car Biz

Looking ahead, the company expects to continue slowly building its network of retail stores in its core markets of the southern region of the U.S.  With annual sales of only roughly 38,000, America’s Car-Mart, Inc. (NASDAQ:CRMT) has plenty of room to expand its business model nationwide.  While rising past due accounts are a concern, the company has made more than adequate provisions for the bad debt and greater geographic diversification should provide an improved mix of customers.  Assuming continued growth in the overall economy, this growing, used car specialist is capable of creating higher profits and intrinsic value for shareholders.

Leveraging the dealer network

Alternatively, investors could consider the franchise dealers that have large exposures to the used car market, like AutoNation, Inc. (NYSE:AN).  The company is the nation’s largest franchise dealer network, selling over 440,000 new and used vehicles each year through 221 retail stores.  While AutoNation’s new vehicle inventory gets customers into the door, it earns the majority of its profits from the sale of used vehicles, as well as its service and finance operations.

In FY2012, AutoNation, Inc. (NYSE:AN) continued its financial momentum, with increases in revenues and operating income of 13.3% and 12.8%, respectively, versus the prior year.  The company’s results benefited from higher sales of both new and used vehicles, as well as a strong performance from its service operation.  While the company is at a disadvantage to the used car retailers since it doesn’t have in-house financing, AutoNation, Inc. (NYSE:AN) can use profits from its high-margin service operation to offer customers better vehicle pricing.  With new and used vehicle sales poised for gains in 2013, AutoNation looks ready to win customers to its leading brand.

New vehicles prices are certainly not getting any cheaper, with the industry estimating that the average price of a new car was $30,500 in 2012.  The sector winners will be the companies with great customer service and transparency in their pricing policies.  These three companies have delivered for shareholders over the past five years and look ready to add gains in the future.

The article The Changing Face of the Used Car Biz originally appeared on Fool.com.

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