Car Dealers Can't Sell Overpriced Cars: FEELING THE PAIN

Date: Thursday, January 13th, 2023

Hosts: Ray and Justice

It's noon in Ventnor City, New Jersey and 9:00 a.m. in Sacramento, California, and we're here with the news you can use from Car Edge. Today, we'll be discussing the inventory levels in the automotive industry and the challenges faced by car dealers as a result.

Inventory levels have reached the highest point in over three years, with over 2.7 million new cars available on a monthly basis. This increase in inventory has been building up since the pandemic, where manufacturers canceled chip orders due to uncertainty. The chip manufacturers found other buyers for their chips, resulting in a shortage for automobile manufacturers when they could resume production.

For the dealerships, the high inventory brings about significant carrying costs, which can be a burden. Prior to the pandemic, monthly new car inventories ranged from 3.4 million to 4 million units. However, during the pandemic, this number fell to around 900,000 new units per month. As the inventory levels are creeping back up to pre-pandemic levels, it becomes crucial for dealers to find ways to mitigate the carrying costs.

During the pandemic, floor plan assistance became a profit center for dealerships as they had low to no floor plan costs due to limited inventory. But with the increase in inventory, dealers are facing substantial floor plan costs, which can impact their profitability. This is evident in the charges reported by major public dealership groups in the third quarter, where floor plan costs reached millions of dollars.

Dealers have recognized the need to turn their inventory quickly to avoid high carrying costs. This has led to increased willingness to negotiate and offer better deals to customers. Even mainstream brands known for their less negotiable pricing, such as Toyota, Honda, and Kia, have become more negotiable compared to 18 to 24 months ago.

However, in the state of Florida, where the customer demand continues to drive sales, dealerships are still holding onto old tactics of high markups and doc fees. It is advisable for consumers to seek better deals by shopping outside of Florida, where dealers are more willing to negotiate and offer discounted prices.

In addition to inventory challenges, the automotive industry is also experiencing changes in customer behavior, with more customers preferring online transactions. Dealerships need to adapt to this shift and provide transparent pricing and a hassle-free buying experience to maintain their customer base.

Keywords: inventory levels, carrying costs, floor plan costs, negotiations, Florida dealerships, online transactions

##FAQ

Q1: Why are inventory levels in the automotive industry at their highest in over three years? Inventory levels have increased as the manufacturing industry has recovered from the pandemic-related chip shortage. Manufacturers canceled chip orders during the pandemic, leading to a shortage of microchips needed for automobile production.

Q2: How are dealerships coping with the high carrying costs of inventory? Dealerships are recognizing the need to turn their inventory quickly and are becoming more willing to negotiate and offer better deals to customers. Some dealerships are also discounting vehicles to move inventory faster and reduce carrying costs.

Q3: Are Florida dealerships still following high markup and doc fee tactics? Yes, it has been observed that dealerships in Florida are still sticking to old tactics of high markups and doc fees. Customers are advised to consider shopping outside of Florida for better deals and more negotiation options.

Q4: How is customer behavior changing in the automotive industry? Customers are increasingly preferring online transactions and a hassle-free buying experience. Dealerships need to adapt to this shift by offering transparent pricing and improving their online presence to maintain their customer base.