EveryCarListed

The auto industry has always reflected the economy that supports it and most auto industry insiders agree that the recent consolidation of new car dealerships was necessary to maintain the equilibrium between supply and demand.  Unfortunately, the sensitive balancing act between new car supply and consumer demand was thrown off by the “success” of the Cash For Clunkers Program which artificially depleted new vehicle inventories.  Auto dealers had already cut back on new car orders to accommodate reduced sales volumes, and floor plan limits capped by shrinking working capital reserves limited the amount of new and used cars that dealers could keep in stock.  As a result, car dealers have not been able to timely replenish their sold inventory to maintain sales momentum and preserve profitability.  More urgently, dealers are scrambling for a way to stay ahead of fixed expenses that have already been cut to the bone.

Many automotive advertising agencies predicted that the Cash For Clunkers Program would produce an artificial wave of business with the associated “peak” in new vehicle sales during August followed by the “valley” in September that could continue through the balance of 2009.  Recent SAAR statistics project an adjusted annual sales rate of 8.8 million new vehicles in September proving that their worst fears have been realized.  Successful auto dealers focus on solutions rather than problems.  As a result, used cars have taken on a new importance with a number of creative techniques being applied to acquire used cars with a priority of selling used cars vs. new cars that are in short supply.

To make matters worse, reduced new car sales have directly impacted used car sales and related profits since as many as 60 percent of new car sales have a trade-in.  These lost trades have reduced the number of used cars available for sale.  That frustrating law of supply and demand has raised the profit per unit on used cars from $161 to $214 per unit from January through July 2009 with additional increases expected as inventories are further reduced.  In addition, used car sales are projected to increase from previous annual levels of 36.5 million units to 39 million vehicles which should increase the per unit profits even further. Read the rest of this entry »