Posted on June 15, 2021 by Travis Peterson
A drive around town quickly identifies an odd reality: dealers’ lots are bare bones. It is honestly shocking how few new cars are on the ground. As new car inventory continues to fall, consumers are turning to used vehicles – putting a big strain on supply and driving up prices.
As a result, the average price of a used car increased by 12.5 percent between last year and this year from $21,020 in February 2020 to $23,643 in February 2021 according to NADA. That bump in price is great news for dealers – if you can find used cars to sell that is!
The market will calm down eventually, but it may take some time. As CNBC reported, chipmakers shifted their focus to electronics like computers when dealerships and OEMs shut down during the pandemic.
Now, those same suppliers are struggling to keep up with renewed demand from the auto industry. Ron Montoya, senior consumer advice editor at Edmunds.com, predicts that car pricing and inventory will likely be affected through at least the second half of 2021.
In the meantime, what’s the best way for dealers to source used vehicles? Finding vehicles is a challenge, and purchasing vehicles at auction is expensive and pits you against your competition and rental car agencies. Your best bet is to get creative in your sourcing. Here are a few ideas:
- Create a “Cash for Not-So-Clunkers” Program. The 2009 Cash-for-Clunkers program was a success because it got consumers back in showrooms and jump-started new vehicle sales. You can use the same idea to boost used car inventory by encouraging consumers to sell extra vehicles that they are not using. Cash-for-Clunkers offered at least $1,000 for old cars that met eligibility criteria. Why not offer $2,000 for anything that runs? You can also advertise that you’re willing to pay over Kelly Blue Book value for a trade. I know of a dealer offering 120% over book value and consumers are biting. Consider even subsidizing some service work to get the vehicle in working condition. Even if the car requires some tech elbow grease, the premium mark-up on used cars will surely make up expenses incurred to get the vehicle in a sellable state.
- Scour social media sites. If I was a used car manager, I would avoid the auctions and seek out individual sellers on social media sites. Facebook Marketplace and Craigslist are both good places to start. Approach sellers with an offer 10 to 20 percent over asking price and have a check in hand. In today’s market, you can finance or sell these cars for 70 to 80 percent of their sticker price.
- Call fleet companies. You can also circumvent auction houses and go directly to fleet companies. It’s hard to have qualms about a fleet vehicle that was used as a company car and driven normally. The cars generally will have higher mileage than a privately owned version of the same model, but they were likely serviced regularly and kept in decent shape. Fleet companies will gladly work with you directly vs paying a seller’s premium to the auction house.
- Launch local marketing campaigns. This may be the only time in history when used vehicles are appreciating in value. That’s a powerful marketing message. Run a campaign in your local paper, TV, and on social media sites, that encourages consumers to cash-in during this unprecedented time and upgrade to a new vehicle at a lower interest rate. You may not have a new car on the ground right now, but you will. As part of your messaging, let consumers know they will be at the top of your waiting list and will receive regular updates about when their new vehicle will arrive.
These are some weird times: sky-high profits but only if you can find something to sell. Sourcing inventory means you need to get creative. Avoid paying outrageous prices at auction and instead think outside the box to get the inventory you need and ring up sales during this unprecedented time.