Low Inventory - High Grosses
More often than not, the word “gross” on a vehicle sale is like finding a needle in a haystack. When the competition is so fierce, and inventory is high, it is harder to make a profit when selling a car. Dealers tend to “give away” the vehicle to make a sale. In turn, sales will rely on finance and service to make up the money lost in the front.
Currently, we are wading through uncertain and unfamiliar times. Needless to say, 2020 has not been an easy year. Ever the optimist, I try to look for a silver lining in every cloud. Generally speaking, dealers tend to make money on their specialty and rare vehicles. Well, who would have thought that this time around, the rare vehicles are pretty much almost every car in inventory? When the pandemic first hit earlier this year, many dealers turned away or lowered their allocations for fear of a surplus in inventory. At the same time, manufacturers had to shut down due to coronavirus restrictions. Now that business has been ramping back up for the past month or so, many dealers are finding themselves in a predicament. No one has any cars. Inventory is low. Sales are high (-er than they have been). What does this all mean?
Basic economics has taught us that when demand is high, and supply is low, one can demand higher prices. That means we can finally make some money on the front end. And that’s the situation many dealers and manufacturers are finding themselves today. With inventory being as low as it is, dealers are asking for higher prices on their vehicles – and getting it. I mean, this has to be some kind of silver lining with everything going on, right? A lot of dealers are finding themselves with only about a 30-some odd day supply of vehicles at the moment and as stressful as that maybe, they are making the most of it.
August is usually a tricky month. When I was still on the dealer side, August was a little funny. It’s that time where parents are getting their kids ready for school in September. Families are taking summer vacations, and people are generally away. Sales can be tricky during this time. The story can be different coming from a different manufacturer – I’m just commenting on my personal experience. Also, around this time, we usually see an introduction to the new year models coming in. With the shutdown, the remaining 2020 models and the incoming 2021 models are on a slight delay. “According to Cox, only 0.5 percent of current inventory are 2021 models, compared with 9 percent of inventory for 2020 models at the same point last year.” So yeah, to say we are a little short on inventory is no joke. Some are in better positions than others. SUVs are hard to come by, and currently, the money makers in this market. It’s a rare position for auto dealers to be in, but we are making the most of it. Gross is not a dirty word. In fact, right now, it’s like a shining light beaming down on us during these crazy times. I don’t know how long this will stay, but we should enjoy it while it’s here. Some manufacturers will fare better than others as the year goes on, but hey, at least take advantage of it while it lasts. An opportunity is an opportunity. And we don’t turn down opportunities.