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Jim Leman

Jim Leman Writing about dealer operations

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Spring Used Car Stocking Alert

By Jasen Rice, founder and chief executive officer, Lotpop -- March 11, 2019 

Traditionally, February and March give dealers some of the highest shopper counts, and April through May sales are brisk.

We probably won’t have that season in 2019.

If you’re still buying and stocking inventory now as you did through last week, stop doing so. The post-tax-refund market may not materialize this year, which typically drives volume through early April. You need to forecast inventory needs for April and May – less demand, meaning less volume – so you aren’t stuck with a lot full of metal that will age as you wait for the uptick.

By April, early tax filers will have received what refunds they have coming, so we’ll see any tax-refund sale bump then, if at all. Late filers typically owe taxes so don’t hope for a late-season hiccup from them.

Cox Automotive has reported that the used-vehicle market sees the most significant impact from tax refunds within the automotive market. March and April have historically enjoyed 10 to 15 percent more used-car sales than the average month and 25 to 35 percent more sales than the slower months in the year. These months also typically see a spring bounce in used-car values.

The strong demand fueled by tax refunds cause used-car prices to appreciate each year when tax refunds are being distributed, Cox noted.

“This appreciation usually lifts prices by 3 to 5 percent at its peak. For a depreciating asset, this ‘spring bounce’ is especially notable, but it is a reliable phenomenon thanks to the impact of tax refunds,” Cox noted.

Last year, the average 2017 refund received in 2018 was around $2,800. Changes to the tax code in 2018 are going to mean “several million households will not receive a refund [in 2019] when they are accustomed to receiving one. Worse still, several million more households will end up owing more money than is typically the case,” Cox reported.

Regardless, I find that year after year as April rolls around, sales slow anywhere from a 10 to 15 percent decline. For dealers having come off a strong February and March, the slowing market can catch dealers with lots filled with cars that will age out waiting for market's return.

This is a mistake I see too often as I analyze dealers’ markets, turn rates, and inventory needs. They come off a strong February inventory flow and roll into March at the same speed, and suddenly they’re holding too many cars and scrambling through May to eat their way out of them.

– if you haven’t yet done so yet, dial back your stocking levels now. Anything on your lot as of today will be 45 to 60-days old when we hit the end of April, going into May. Stay alert!  Call Lotpop at 314-568-2754 for a complimentary analysis of your situation.

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