Dealers that deliver the superior digital experience demanded by customers are, in our view, most likely to see their securities outperform.

Would anyone be disappointed if car salespeople became a relic of the past? Unlike Willy Loman, the protagonist of Arthur Miller’s 1949 play Death of a Salesman, few sympathize with the dealership smooth talkers who will do anything to “get you into this car today.” And increasingly, customers are seeking out and finding ways to avoid them all together.

Enter digitally native platforms, such as Carvana and Vroom. In 2013, Carvana introduced a revolutionary online buying platform for used cars, allowing customers to browse inventory, pay a no-haggle price and take delivery of a vehicle, all without stepping foot on a lot or speaking with a salesman. In the eight years since, growth has been explosive and the company has expanded its offering to nearly every corner of the United States. In the 12 months ended June 30, the company sold 337,000 used cars to retail customers, making it the second largest used car dealer group in the country (behind much longer-tenured CarMax at 886,000 units). The rapid growth (including more than 96% unit growth in its most recent quarter) has been handsomely rewarded by the capital markets via the company’s approximately $60 billion valuation, despite still limited profitability.

However, such platforms still represent less than 1% of all automotive retail, an incredibly fragmented market, with an estimated 40 million used units sold per year on top of more than 17 million new units.

What are the 43,000 physical car dealerships in the U.S. to do in response?

Dealership groups that have been most rewarded by the equity and credit markets (in the form of higher valuation multiples and lower credit spreads) have been those with the clearest plans to create their own fully online buying experience for at least some percentage of their anticipated sales. While car sales at physical dealerships are still likely to represent the vast majority of industry revenue for the foreseeable future, launching such platforms allows dealer groups to pursue more aggressive growth targets, guide toward significantly higher future profitability and ultimately achieve premium electric vehicle multiples. And, across similar dealer groups, even those with similar credit metrics and ratings, bonds with the tightest spreads are generally issued by dealer groups with the most well-articulated digital strategy.

While the ultimate death of the car salesman is a long way off—traditional dealer groups with sufficient scale and well-developed ancillary offerings (e.g., finance, parts and service) will remain relevant for years to come—the most successful credit investments are likely to be in those companies with the resources to pursue the best digital and “salesperson-free” experience, which customers are increasingly demanding.