Understanding and Adapting to New Car Inventory Shortages

Nothing is untouched by the current climate. OEM’s across the country saw vehicle manufacturing cut short earlier this spring, leading to the looming threat of new inventory shortages at businesses like yours. You’re not alone, and manufacturers are taking steps to fill in the gap left by the shutdown. There are also steps you can take to maximize revenue as production ramps back up and inventory recovers.

Your pre-owned inventory can be a bulwark against uncertainty. You can rely on your pre-owned stock to maintain a solid sales pipeline. It can also ensure your lot stays full in the absence of new vehicles, and provide your customers with high-quality options when they visit to purchase or trade. Without knowing when or if output will reach previous levels, keeping your staff and customers active in the buying process will only serve you as the market attempts to stabilize.

Where the Industry Stands

As of late August, less than 1% of models in showrooms across the country were 2021 models. That’s a year over year decrease of more than 8% and is indicative as anything that new vehicle production and inventory numbers are under significant stress. 

This stress is a direct result of factories closing during the early spring months in response to the pandemic. There were other factors, including worker unrest, that impeded manufacturing from restarting. 

Your business may have felt the delay early on if you were selling larger quantities of new stock, but it’s only now that the industry is seeing these additional effects. It’s more unfortunate that this concern is unlikely to be alleviated quickly. In the months since the country began opening again, increased safety measures against the virus have kept factories from returning to full strength

The issue was compounded by the aggressive incentives rolled out throughout spring and summer. Sales had reached a bottom point in mid-April, and the industry needed to buoy itself in the short term before it could address larger issues, production among them. Sales began recovering as we went into the summer, buying valuable time for manufacturing to pick up.

It’s gone on to do just that, though still at a reduced pace. For instance, GM, Ford, and Fiat Chrysler are reporting good progress on building new inventory to send to dealerships. Ford has said they’ve reached 95% capacity and saw a lower than expected quarterly loss as a result. These three are even going so far as working through their usual summer slowdown to make sure they provide dealers with inventory. 

Put simply, there are real difficulties for our industry in both the short and long term. Your business is also likely to feel their effects for a while longer. Leadership is taking steps to prepare for and lessen the impact of any future shifts in the market and keep turbulence to a minimum.

Powering Your Business in Tougher Times

Lower new vehicle stock is only one part of the story when it comes to your business weathering the ongoing storm. Certified pre-owned vehicles can and should play a more significant role on the go forward. Your customers still trust you and your staff to provide them with quality product, and your selection of used cars can ensure you keep that promise in lieu of offering brand new cars.

Incentivizing pre-owned sales, especially now, will ensure you can maintain a strong sales pipeline. As customers come in, some will be looking to upgrade, but others could be on a hunt for a side or downgrade that will ultimately cost them less up front and possibly in the long run. They’ll trust that when they purchase a used vehicle from you they can come to you and your service department for years to come.

We discussed the value of your service drive in a previous article, and you can make it more so by ensuring customers their pre-owned vehicle runs like new regardless of age. 

Pulling in used stock has tangible benefits, too. Right now, most dealerships have about a 37 day supply of used vehicles for sale depending on OEM and region. As your inventory shifts and customers sell to you, you can physically show them that your business has the cars they want as soon as they want them, at a price they can accept. 

Be mindful also that used vehicle prices are increasing due to an increase in demand. On average, a used vehicle retails for $21,111, an almost $2,000 increase over last year. While this does mean higher potential profit margins for your business, it also pushes customers to look at new inventory as well, as the price difference between new and used has shrunk.

If you happen to have a higher stock of new vehicles to sell, pre-owned can move even more inventory and further push customers toward your showroom, where the latest models shine. The last three months have seen strong pre-owned sales, but August saw a mild decline versus June and July. Whether that translated into stronger new car sales in September is unclear as of writing. Still, it shouldn’t dissuade you from putting additional emphasis on pre-owned while you have the opportunity.

The Bottom Line

How you draw the line between your pre-owned efforts and your new car sales will ultimately depend on factors unique to your dealership and community. However, you can be assured that no matter what choice you make, the industry at large is taking every precaution to return more normalcy to every facet of the market. The short term will require adaptation and patience. The mid and long term benefits of caution and reexamination of sales priorities should be well worth the initial investments against the difficulties we face today. 

***

To help your business reach more pre-owned customers, contact ReVo MG and inquire about our latest product offerings.


Related Blogs