I was just watching the Kamux Roast, which I think is one of the best roasts overall.
At the beginning of the interview, Verneri asks Kalliokoski how easy it is to transfer the same concept to Sweden and Germany. According to Kalliokoski, in Sweden, more attention needs to be paid to car safety, and in Germany, to service. So I’m asking, what are the more specific arguments for these? That is, does the car trade have a bad reputation in Germany, and has there been anything negative regarding the safety of used cars in Sweden? I, for one, am convinced of the speed of Kamux’s service.
I think these are only related to culture, meaning Germans want good service when they go to a store as a paying customer, whether it’s a car dealership or a hot dog stand. Germans seem to be a bit of a developing country in e-commerce, which may be partly due to this culture.
For Swedes, when choosing a car - whether new or used - the most important selection criterion is safety. Other criteria might include: powertrain, price, environmental friendliness, age, color, model, brand, etc., etc. Of course, safety is probably number one everywhere, but in Sweden apparently with even higher scores than elsewhere.
So, simply put, for “not-so-safe” cars, inventory turnover would be slower in Sweden.
And the roast itself was probably excellent, and only the way things were translated started to bother me.
” My experience, it turns out, is not an anomaly. A trio of automotive web stores – Carvana Corp., Shift Technologies Inc., and Vroom – have the accelerator pinned, as COVID lockdowns played into business models that are socially distanced by design. Take a look at the charts in our deep-diveon the space. In the next few years, analysts expect 8% to 20% of vehicles to be bought via computer or phone.”
Good link, Verneri The text made a good point about the fragmentation of the market and the need for big muscles to be able to invest in this upcoming digital leap:
"The auto business, meanwhile, is still extremely fragmented; the largest dealer groups hold far less than 5% of the market. That’s critical for two reasons:
First, one of these startups could quickly dominate the industry. Carvana is bent on selling 2 million cars and trucks a year, which would be about 4% of the total U.S. auto market – used and new.
Secondly, the vast majority of car dealers are relatively small businesses operating at thin margins. As such, many will lack the tools – or the capital – to win on the internet, or even keep up."
What’s interesting about Carvana’s operating model versus, say, Vroom, is that Carvana has its own drivers and trucks. Someone who has worked as a logistics manager at both companies said the following a while ago:
"Your own private fleet is absolutely essential in the e-commerce side. It’s the hardest part to replicate because it’s the biggest cost. Drivers are tricky. Overall, in the industry across all of transportation, there’s roughly 110% to 115% turnover.
Carvana’s capability is around the 10% turnover rate. So they pay their drivers well. They treat them well. And so as a result, they don’t struggle in that area like a lot of other companies do. But having that 2 pieces with their own drivers and their own trucks is an enormous advantage. I mean if you look at Vroom, they’re doing the same thing as Carvana, but they’re using common carrier. And their average delivery days is 10 to 15 days. Carvana does it between 1 and 3, typically. The longest is usually no more than 4, unless something happens."
And if you look at, for example, Carvana’s old job advertisement:
There’s probably room for improvement in logistics at Kamux too…
Those empty car carrier trucks are rattling around all day, who knows whose business it is…
BUT Kamux’s inventory has increased in almost all Finnish outlets, I was browsing online more carefully yesterday. Whereas previously small units in the provinces had about 50 cars, now they have 70-80.
A total of over 5000 in Finland.
So they are definitely aiming for growth, things are well on track.
Without casting ashes on my head, please remind this country boy again how this works. Kalliokoski has tattooed himself with the motto of inventory turnover speed. So what does it mean if there are a lot of cars in stock? Are they preparing for future demand? Or is sales not picking up? In few businesses is a full warehouse a good thing, right? Or is there something I don’t understand here?
The phrasing of my text might be interpreted as sarcastic. However, that’s not my intention. I’m just wondering what can really be concluded from inventory growth.
In the summer and early autumn, demand has been very high and (even Kamux) has experienced a shortage of supply. Demand is apparently still very good, so the increase in inventory levels suggests that Kamux has successfully managed to acquire more goods for sale. In late July/early August, supply was likely a limiting factor for Kamux’s sales as well.
In the spring, Kamux had over 6000 cars in stock on its website, and during the corona pandemic, the stock was actively cleared as we went into tortoise mode. Of course, the stock has to be bigger now that growth has returned (in terms of number of stores) compared to last year.
It should be remembered that in the spring, when protecting against corona, car purchases were put on hold, which brought the stock level abnormally low. The growth of inventories has also not happened particularly quickly, but over a period of several months. Kamux currently has 4795 cars listed on its Finnish website (so over 5000 at the bottom is not accurate), and about 500 of these are cross-listed from the Swedish and German sites to Finland.
The increase in inventory size does not in itself indicate the level of sales or a slowdown in inventory turnover. Inventory grows when, on average, more cars are purchased than sold. If 200 cars are sold and 210 are purchased, the inventory grows by 10 cars. The same follows if 30 cars are sold and 40 are purchased.
The absolute level of inventory doesn’t, in itself, tell us about its turnover rate.
Inventory turnover can be maintained even while simultaneously increasing it. Tekijämiehet (the doers) increase both turnover rate and absolute size.
Inventory growth would, in itself, be a bad thing if it were due to sluggish sales. However, there’s likely no concern about that at this stage – inventory turns well, and additional purchases allow its absolute size to be increased.
Inventory growth, on the other hand, means a few things for inventory turnover:
It is clear that increasing inventory as a single variable makes it more difficult to maintain the inventory turnover rate. On the other hand, with the right acquisitions, a company can offer something to an increasing number of potential buyers. Especially for a business like Kamux, where so-called ancillary products have a significant impact on the company’s profitability, maintaining turnover rate is paramount. More sales in terms of volume = more sales of ancillary services, which are more “fixed price”.
Slow inventory turnover is, of course, also a negative thing regarding the efficient use of capital.
However, the number of cars for sale doesn’t give much of an indication of the demand for the actual products – in the best-case scenario, sales are booming, and in addition, buying support for used cars is received from a separate purchasing organization
Q3 may not have been a perfect performance from Kamux (my own speculation), but at these prices, Kamux offers, in my opinion, a rather nice long-term return potential. Kamux is likely to be one of the winners of digitalization, and inventory seems to be in good shape for Q4 as well. The coronavirus just increases the demand for cars…
On the other hand, I’m also keenly following the activity of manufacturers of cheaper/small cars; I also have a small stake in PSA.
I strongly believe that COVID will be a part of everyday life, like seasonal flu, for a very long time. This will lead to people moving into detached houses, away from city centers, and also avoiding public transportation. All of this will benefit sellers and manufacturers of inexpensive cars, as families will need cars (i.e., more than one).
Relatively speaking, I believe that used car sellers and manufacturers of inexpensive cars will benefit.
Now, as a beginner stock investor who joined at the beginning of the month (a little over ten days ago), I have to think about whether I should buy more.
I don’t see this as a falling knife, but since my strategy’s buying plan has other things next, it’s getting difficult.
I’ve been holding back for now – I’d like to buy some more, but on the other hand, the fully loaded Q3 expectations, the market’s recent physical reactions to earnings reports, and a fairly good-sized Kamux weighting in my own portfolio have led to caution. A good earnings report and a positive reaction are of course hoped for, and then we’ll see about possible additions after that.
Now, from a reaction perspective, it’s an interesting situation as Kamux enters the earnings season without the Intera selling bogeyman and a dip pounding in the background, although the general market sentiment is certainly not the easiest.
It also makes me wonder that this earnings season, market reactions have been such that even companies with good results have seen their stock prices decline. Here, Kamux is expected to have a good fourth quarter and good results – but I can’t really figure out why that expectation wouldn’t already be in the current price. If they deliver a “normal” good result, what would then be the driver for a stock price increase?
On Friday, dividends from Kamux would once again be hitting accounts. Already the second time this year. A strong dividend stream for a growth company. Especially those lots bought for under five euros have been profitable…
According to Inderes’ forecasts, next year’s dividend would be at this year’s level, and then rise steadily annually.
My guess is that next year’s dividend will, however, be higher than this year’s. Maybe not as big a jump as before, but “a tiny bit” higher nevertheless. The reasoning behind this is the realistic management’s message to investors, and of course, a strong cash position. Well, after Q4, we’ll get the facts on this too!
The text made a good point about the fragmentation of the market and the need for big muscles to be able to invest in this upcoming digital leap:
