Sitting on too much of the wrong inventory is becoming increasingly costly. The National Automobile Dealers Assn. reports new-vehicle holding expenses are the fastest growing item on dealers’ financial statements – up 142% in 2019 vs. 2018. This is driven by the fact that new-car inventories are up compared with last year, while retail sales are beginning to slide.
What’s unique about this year’s sell-down season is that there are an unusually high number of model year ’18 vehicles still collecting dust on dealers’ lots, while a lower percentage of ’20 vehicles have come through.
“This is probably the biggest carry-over problem we’ve seen in the last several years,” said Mike Maroone, a former president of AutoNation Inc., who owns dealerships in Colorado and Florida. “It has been very painful.”
What’s the best way to handle this situation if you’re a dealer representing a brand with an overabundance of current and prior model year vehicles?
Be bullish on trucks and SUVs, skittish on sedans. Consumer demand continues to shift away from cars. I recently noticed a Hyundai dealer with a 555 days’ supply of 2019 Sonatas and 196 days’ supply of Elantras. Both metrics on those cars are well above the overall market average.
This is trouble for two reasons: 1. Only three of every 10 new vehicle customers are looking for a sedan 2. Sedan customers are more likely to have a sedan as a trade, and your used-car manager would certainly prefer more CUVs.