If you’re an auto dealer and feeling a little behind the times today, you’re not alone: So is your inventory.
U.S. dealerships — which should by now have lots of 2020 model year vehicles for sale — are still stocked full with a near-record proportion of vehicles in the current model year, in this case, 2019s.
The main reason, according to J.D. Power? Dealers just now got rid of most of their leftover 2018 models — some four months late. And those leftover 2018s hung around on dealer lots too long because they were crowded out earlier in their model year by an overabundance of 2017s. At the heart of the problem is this: Manufacturers haven’t sufficiently slowed production to match slowing retail sales, said Tyson Jominy, vice president of data and analytics for J.D. Power.
“We are behind,” Jominy said of industry retail sales. As of mid-October, about 26 percent of dealership retail sales were of the coming model year (2020), compared with 32 percent of 2019 models at the same point a year ago. Meanwhile, sales of previous model-year vehicles — in this case, 2018s — were 40 percent higher than a year ago, when dealer lots were clearing out remaining 2017s.
So why does it matter what’s selling if the industry continues to sell a robust 17 million vehicles a year in the U.S.?
Because selling a bigger percentage of older vehicles in the retail mix costs more, both in larger incentive spending for automakers and greater carrying costs for dealers, Jominy said.
“Incentives have been skyrocketing pretty fast,” Jominy said. “We’re now at an average of about $4,100 per unit. That’s a 10.4 percent spend as a percentage of MSRP, and anytime incentives rise above 10 percent, alarm bells should start going off.”
Automakers don’t differentiate their monthly or quarterly sales reports by model years, so it can be easy to forget about exactly which new vehicles are being reported sold. To exacerbate the issue, the Detroit 3 automakers now report their sales only quarterly.
Those automakers that did release their sales reported a mixed bag for October. Volume at both Honda and Hyundai climbed on crossover sales. Sales at Subaru and Mazda were up, while Toyota, Volkswagen and Nissan fell. Among luxury brands, BMW, Mercedes, Porsche, Audi, Land Rover and Genesis all rose year-over-year.
Overall, the industry remains healthy — although buoyed by near-record incentives and heavy reliance on fleet — with some analysts now shifting their 2019 sales predictions back above 17 million vehicles for the fifth consecutive year. See full sales results on Page 37.
Jominy said the older vehicles crowding dealer lots later into the year is a phenomenon that began in 2017, when automakers were late to recognize slowing sales and continued production at then-current levels, when monthly SAAR rates were topping 18 million. Inventory levels began to creep up, and as a result, dealers spent more time in 2018 selling off remaining 2017s, and putting their new models at a sales disadvantage. The cycle bled into this year, Jominy said, as automakers largely continued producing more vehicles than dealers were able to sell at retail.
Jominy said that, typically, previous-model-year vehicles would be largely cleared off dealer lots by July. But this year, it took until October for previous-model-year inventories to dry up. By mid-October, he said, the industry was down to about 1 percent of 2018s in stock, or roughly 37,000 vehicles nationwide.
“At this point, it’s almost a completed story, but we should have been [selling down] 2019s three months ago,” Jominy said.
Other factors can contribute to older-model-year dealer stocks, including planned product cadences and homologation issues that delay vehicle launches. Jominy said that for many brands, the number of remaining 2018s still in stock is relatively small. He declined to discuss which brands or automakers had the highest inventories of remaining 2018s in dealer stocks.
A review of aggregated nationwide dealership website inventory data conducted by Automotive News at the end of October on iseecars.com found that about two-thirds of remaining 2018s were made by Detroit 3 brands. Fiat Chrysler and Ford dealerships each accounted for about 26 percent of remaining new 2018s, while GM dealerships had about 15 percent of the industry’s remaining new 2018s in stock.
For dealerships, previous-model-year new vehicles are “a drag,” said David Kelleher, owner of David Dodge-Chrysler-Jeep-Ram in Glen Mills, Pa.
Kelleher, a nominee for this year’s Time Dealer of the Year, said his store had five 2018s left at the end of October, and he told his sales manager that he was willing to lose $3,000 on each of them just to get them off his lot.
“There’s a boarding cost every day that we have these cars — floor plan, maintenance, upkeep, even the parking space,” Kelleher said. “Inventory turn is a vital component of our profitability and our success.”
Kelleher said having leftovers in stock isn’t unusual for dealers, but having them so late in the year is.
“You’re always going to end up with an island of misfit toys at the end of a runout, but that should happen in April or May or June, not October,” the longtime FCA dealer said. “The reason that I still have five left now is that I had 80 of them in April, and it’s taken this long to move them out.”
The older mix in dealer stocks looks to be on automakers’ radar as well. Brad Korner, general manager of Cox Automotive Rates and Incentives, said it has tracked earlier payments this year in so-called final-pay incentives, especially from Ford and General Motors, trying to get an early clearout of 2019 models and perhaps get back on a traditional schedule. Unlike consumer-facing incentive programs, which pay dealers upon the sale of a vehicle, final-pay incentives are cash that the dealer can use to market and sell the car. The payments let dealers advertise thousands of dollars in “dealer discounts” on an older model.
“It’s a ticking clock,” Korner said. “We saw [final pays] come early this year for 2019s — 30 to 60 days early, in some cases, starting in August. That’s the OEM saying, ‘Get rid of these 2019s, because we’ve got 2020s ready to go.’ ”