Have you ever wondered what happens to all of the cars that never get sold? Keep reading to find out.
Dealerships and Auto Makers
Dealerships are franchises that purchase new cars (sometimes by taking out a loan) from manufacturers and sell them at a profit. “The day the cars leave the factory, the factory gets paid,” Canadian Automobile Dealers Association (CADA) spokesman Huw Williams told The Globe and Mail. “If the dealer buys 500 vehicles from the factory, they’ll be responsible for those 500 vehicles.” So, once the dealership buys those cars, they belong to them — until they sell them to consumers. And, “it’s in the manufacturers’ best interest for the dealership to sell their vehicles quickly, so they give incentives, say $3000 cash back or zero-percent financing,” Radek Garbowski, COO of Unhaggle, told The Globe and Mail. “And the financing is usually through the manufacturer, for example, Toyota Financial Services, so the manufacturer makes money that way.”
If by chance, those cars sit too long, the manufacturer may give the dealer a clearance rebate — that is, a direct payout to the dealer. As a result, that car is no longer eligible for special rebates and financing. But, what happens if they are not able to sell those cars? They can just send them back to the manufacturer, right? Wrong. As we just mentioned, once the dealer buys the cars, they belong to them, with the exception of lease returns, which can be returned to the automaker and resold at auction. So, what then do they do with the rest of the unsold cars? Continue reading to find out.
What Happens to Unsold Cars
Before the year ends, dealerships work hard to sell unsold vehicles to prospective customers. But, it doesn’t always turn out the way they plan. And with the next year’s models hitting the lot soon, those unsold cars have to go somewhere. That being said, there are a number of options dealerships have when it comes to those cars. One thing they can do is ship them to a different market where the specific model might be in demand. “For example, a city Toyota dealer with a Toyota pickup may trade it with a small town Toyota dealer who needs it,” George Iny, president of Automobile Protection Association, told The Globe and Mail.
A second option for dealers is to sell cars through auction. Unfortunately, dealerships lose a great deal of money doing so because the auction house takes a cut of the final sale.
Another option would be to keep the cars and use them as loaners for people who bring their vehicles in to get serviced.
Lastly, the dealerships can always price the cars to sell.
And, if all else fails, chances are those unsold cars will end up wherever space is available — whether that be in shuttered factories, barren fields, or vacant shopping centers.
How This Benefits You
As we just mentioned, one of the things dealers can do to get rid of unsold cars is to price them to sell. So, what does that mean for you? It means that you can get a current model vehicle at a reduced price — if you wait for just the right time. So, when exactly is the right time? Well, according to experts, the right time to get a vehicle that is priced to sell is in the fall, around September and October. That’s when dealerships push to get last year’s cars sold so they won’t compete with the new cars that will be arriving soon. But, there are some things you should consider beforehand to make sure you get the best deal:
5. Do your homework. Knowing your facts as well as your financial situation beforehand is important. Some great sources for facts on vehicle values include Kelley Blue Book, Edmunds, and the National Automobile Dealers Association.
4. Go on a weekday. This is the best time to drop by or call and schedule an appointment. Also, don’t show up when they’re about to close. They are less likely to give you a good deal when they’re trying to close so that they can go home.
3. Get everything in writing. If a salesperson promises you things in order to get your John Hancock on a contract, make sure you get all of those promises in writing first. Otherwise, it’ll be your word against theirs.
2. Always read the fine print. Then read it a second time. Make sure everything is crystal clear. And, make sure you do this BEFORE you sign any contracts.
1. Get an overview of the car. Get someone to review how everything on your new car works before you drive it off the lot. This includes showing you how the windshield wipers work, how to deploy the emergency brake, and where the gas tank is located.
Unsold cars are nothing new. Unfortunately, the problem has gotten worse over the years. There were 3.95 million vehicles on dealership lots at the end of January 2019, a four percent increase from December 2018 and nearly a three percent increase from January 2018. And, at the beginning of April 2019, the industry had nearly 4.2 million unsold cars and trucks on hand. This was the highest inventory number for any month since the number reported for July 1, 2017.
So, why are there so many extra cars? According to an article published by The Wall Street Journal, this abundance comes from an oversupply of new products and the fact that not every car dealer can achieve their sales target. This situation results in pressure to cut factory output, some analysts say. “We could see more of the pain we saw last year with GM and inventory being taken out on the car side,” J.D. Power analyst Tyson Jominy told The Wall Street Journal. Plus, “low-interest rates in the past made it cheaper for dealers to carry high levels of inventory, but now that interest rates are going up, retailers will more than likely be pickier about what vehicles they stock,” Ryan Gremore, president of the O’Brien Auto Team dealership chain in Illinois, Florida, and Kentucky, told The Wall Street Journal.
Now you won’t have to wonder what happens to all of the unsold cars the next time you pass by a dealership. And, who knows? Perhaps you can stop by and get a good deal on a current vehicle before the new models arrive!