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1 Way This Detroit Automaker Is Fighting Back

By Daniel Miller - Jan 24, 2016 at 12:00PM

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One thing is certain: Major automakers in the U.S. market will look insanely different in a decade.

The automotive industry is evolving before our very eyes. I'm not just talking about Tesla Motors and its electric vehicles. I'm talking about industry giants that have hardly changed the way they run their business models in decades -- companies like General Motors (GM -2.50%).

Right in front of our eyes, General Motors and crosstown rival Ford are rapidly expanding their business focus to include mobility and transportation projects that are influenced by new thriving companies such as Uber. General Motors has been focusing on expanding its Shop-Click-Drive program to steal some of TrueCar's thunder, and GM's recent used vehicle website program could eventually steal business from retailers such as CarMax, Inc (KMX -2.81%)

However, the latter example might not benefit GM the way investors would think, and what does it mean for companies like CarMax?

What's the big deal?
Speaking from a personal experience, the last time I purchased a vehicle was in 2012, and I spent roughly six hours at the dealership. My takeaway from that experience was "that's never happening again." It's that time-consuming, price-haggling process that has given life to companies such as TrueCar, which enables you to do much of the sales process online and, in theory, walk into a dealership with a price guarantee to cut down on the time spent at dealerships.

CarMax is another example of a service where consumers can peruse online inventory and even have some cars shipped from other dealerships to one closer to you, and with a no-haggle price policy, you're spending much less time at the brick-and-mortar location.

Companies like CarMax and TrueCar, among many others, exist because automakers failed to recognize opportunities to evolve their businesses. Now, General Motors is taking steps to improve the used car buying experience at its dealerships by moving more of the process online. Car buyers in the U.S. who are looking for a used Buick, Chevrolet, Cadillac, or GMC vehicle will have access to a national inventory of more than 30,000 vehicles with fewer than 37,000 miles.

Further, GM's used car online website, the Factory Pre-Owned Collection, will enable consumers to compare suggested prices to what other car buyers have recently paid using Kelley Blue Book's Fair Market Range. In addition to that, car buyers can get a Carfax Vehicle History Report on the vehicle selection.

What does the strategy accomplish?
This used car strategy won't send incremental revenues to GM's top-line revenue, as it records revenue when it sells a wholesale vehicle to dealerships, but that doesn't mean the program doesn't have value. It's going to be great for GM's dealerships in the sense that it will lure consumers who are using CarMax for a faster, simpler used car buying process. GM also expects its used car online program to introduce new buyers to its brands and increase residual values.

But, let's put this GM program into perspective: It's a baby step. GM's initial inventory of 30,000 used vehicles pales in comparison to CarMax's more than 143,000 used unit sales during the third quarter alone, or 464,699 used unit sales through the first nine months of 2015. It's hard to compare those figures because we don't know how quickly GM will turn its used vehicle inventory into sales, but it seems safe to say its used vehicle program has a long way to go before it takes a bite out of CarMax's used car empire. It's also unclear how large GM would even want to build a used car program like this -- while it wants to optimize sales, it also doesn't want to cannibalize too much of its new vehicle sales. 

But really, the interesting thing for investors to watch is if GM and other major automakers continue to step beyond the boundaries of their historical business strategies. Could GM continue to build its Shop-Click-Drive program -- which is basically a direct competitor of TrueCar -- to help consumers speed up the buying process at its dealerships? Could GM continue building its used car program to take a bite out of CarMax's business? Could GM continue to test programs such as Let's Drive NYC to take a bite out of Uber's dominance in the emerging ridesharing business?

Ten years ago, the answer to those questions would be no, but today, the answer looks like GM, and potentially other major automakers, are certainly going to try. The next 10 years in the automotive industry promises to be one very interesting ride. 

Daniel Miller owns shares of General Motors. The Motley Fool owns shares of and recommends CarMax. The Motley Fool recommends General Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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