Some dealers are desperate for inventory.
They’ve been calling peers, such as Terry Hanks, president of Sundance Chevrolet and Sundance Buick-GMC in Michigan, offering to pay handsomely, especially for light trucks.
“They offered us $3,000 over sticker price for pickups,” Hanks said. “I never heard of such a thing in my life.”
Hanks said he has declined to sell any of his cars or trucks because, like other dealers, he needs them for his own stores. He also doesn’t want to lose future allocations of new-vehicle production from automakers, which is in part based on how much volume a store turns.
Similar situations are occurring across the U.S. after production essentially halted for eight weeks early in the pandemic and have only been made worse by the global shortage of microchips.
Hanks said last week that his Chevrolet store had only eight or nine new vehicles on its lot, adding, “We usually have 300 to 400.”
Even the allure of above-sticker prices for vehicles is not enough to lead retailers such as Hanks to part with what they have on the ground — unless it’s an even trade, such as one pickup for another.
In addition to not wanting to lose allocations from the factory, dealers who spoke with Automotive News said they were reluctant to sell their vehicles to other dealers because of the need to keep their employees making money.
“I got to get my salespeople and all my managers every swing at the plate I can with every car I have,” said Michael Brown, owner of Empire Automotive Group in New York. “My people need to make a living.”
Brown said most of the new-vehicle brands he represents have less than a 30-day supply at his stores.
He is trying to acquire every used car and truck he can. That includes buying off the street — scouring Craigslist and Facebook Marketplace listings, for example — and purchasing off-lease vehicles, while also trying to pluck cars and trucks from the service lane.
That last effort is a new one for Brown. His staff, like those at many other retailers, more typically would be trying to sell vehicles to service-lane customers rather than trying to buy their cars.
“The thought is maybe since they’re a two-car family or three-car family, but one [person] is working from home, they might not need it,” Brown said. “They might like the equity chunk right now.”
Many vehicle owners are finding themselves in a good equity position. With generally slim supply and strong demand, new and used vehicles have been commanding record prices.
U.S. dealerships have about 1.3 million fewer vehicles on their lots compared with the middle of 2020, according to Cox Automotive.
The average new-vehicle transaction price climbed to a record $40,206 in June, according to J.D. Power — almost $1,700 more than the previous record, which was set just the month before.
The situation has made Nick Keaton quite busy.
Keaton, vice president of sales at Dealer Trade Network, which facilitates transactions between dealers, said his company has added almost 1,000 clients in the last year alone, after previously having done business with about 4,000 dealers in its 17-year history.
In the past, Keaton was accustomed to helping clients who had too much inventory on their hands.
“Really, the name of the game right now for the dealership is maintaining their profit margin with less units to do it with,” he said. “I mean, that’s how they’re all surviving. And it’s a struggle — we hear it.”
So who in their right mind is actually selling vehicles to other dealers when there are so few to sell to customers?
Keaton said it’s dealers who have inventory that is not right for their market. He said Dealer Trade Network has proprietary technology with predictive capabilities that can essentially tell dealers what kind of vehicles are — or aren’t — a good fit for their markets.
Keaton described one situation in which a dealer client in Michigan had trucks that were “built wrong for his store,” so the dealer sold them to a dealer in Georgia. He declined to name the dealers.
“And then the guy in Georgia eats it up. Whatever price it is, it just doesn’t matter because he’s got a retail customer for it, and he’s got to keep customers happy,” Keaton said.
Michael Chapman, vice president of Chapman Auto Group in metro Philadelphia, said his group has been approached by locator companies — businesses such as Dealer Trade Network — but not by individual dealers.
“They’re offering to buy our cars for over MSRP and obviously turn around and sell it to a dealer,” Chapman said. He called the pricing situation “crazy.”
But even crazy offers aren’t enough for him. A couple of the group’s stores have only 12 or 13 new vehicles on the ground to sell, Chapman said.
“We don’t have any to give up,” he said.
Like other dealers, Chapman is hopeful that factory output will pick up in the second half of the year and increase the supply of new vehicles.
“But, again, with so much demand, I don’t know when we’ll have a bevy of inventory on our lots,” he said. “As quick as they come in, they’ll probably go out.”
Hannah Lutz contributed to this report.