Quote:
Originally Posted by McLovin
One of the biggest reasons I've seen franchised new car dealers sell their used cars at auctions is pressure from the flooring lender.
A lot of new car dealers don't run their used car sales very well. They'll price the used car too high, so it doesn't sell in the first month. They aren't on top of things, so instead of advertising it more, reducing the price, and really working to move the car, it just sits.
After 90, 120 or more days of sitting, that car becomes "aged inventory" and the flooring lender starts to get nervous. Because after some period of time, the lender becomes "upside down" (i.e., the car is now worth less than the amount they loaned on it). So the lender moves from fully secured to partially unsecured.
The lender sends demand letters to the dealer, demanding that the aged inventory be sold, and the loan paid down. The threat is if the dealer doesn't do it, the flooring line will be cut off.
The lender wants the cars gone, and quickly, there is going to be a loss anyways, so the dealer takes the quick way out and auctions it.
Also, dealers take cars in trade that are lines they don't sell. With limited floor financing money available, they'll often wholesale or auction those trade ins, to be able to floor the brand of cars they sell or help them to drive their sales.
As far as the car biz, IMO pretty much everyone in it is shady, at least to some extent. It's just the nature of the business.
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I agree 99%
But again, beware. There is usually a REASON that the car is aged on the lot... it was passed by over and over for other cars. So why would another dealer want to do the same? Yes, sometimes it is price. But just as often it is just an edgy car with issues.
When I ran large dealerships, we retailed out of everything. The only cars I "wholesaled" I either knew about up front (i.e., knew we didn't want it when we took it in on trade) or found out we didn't want based on the shop's inspection. Those cars were sold to other dealers or wholesalers, whomever would pay more. Often I got buy-bids from dealers before they were traded in.
So in the instances where it wasn't selling, I would rather earn a customer. And therefore opportunities for trades, other products, and commissions for my salespeople. Even if it would bring the same (net) at auction, I'd rather sell it retail.
However, my policy was...... if it was on the lot 30 days, a salesperson or lot person went and did an "appraisal" as if it were being looked at for the first time. Were all the tires full? Rotors rusty? Was the car spotlessly clean? Did everything work? Did it smell funny? Run funny? Any scrapes, dings, dents, cracks, or other reasons a potential buyer would walk on by? More often that not, something needed to be corrected to be "lot ready" again. The correction was made, perhaps along with a price adjustment, and they usually sold. At 45 days, a manager did the same reassessment, and they'd take it home overnight. At 60 days, it was given a wholesale price, regardless of what we owned it for.
Believe me, a well-run dealership tracks everything. I knew how many times the keys were accessed. How many times each car was demonstrated to a customer. How many offers were made on that car. How many web-views that car got on our site and paid sites like Autotrader. How it ranked in price compared to other similar cars within 100 miles. Everything. You'd have to be an idiot, lazy, or have a huge ego to really screw it up. It took a lot more, of course, to do it consistently profitable
I love when people think dealers make $5000+ on a $30K car. I can't think of a single high-volume dealer that makes that kind of margin in today's market. That would be a homerun. The only way that typically happens is when the car was "stolen" when it was brought in on trade. But, if you think about it, that profit was really "stolen" from the first deal when it was brought in on trade. It's simply accounting, and a bad business practice. In other words, the ACV was too low. Used car manager = happy. New car manager = robbed. General manager = one pocket or another, who cares. Over hundreds or thousands of cars, it doesn't matter.