By Madeline Klein on May 7, 2021 in Life Hacks
Fun Fact: About 17 million new cars are sold in the United States each year. Obviously certain years bring higher or lower sales numbers due to increased cash flow or financial crises. So, say it’s been a bad year, or just a normal year but the dealership has extra stock at the end of it, what happens?
How do Car Sales Work?
It is important to first understand how the car-selling industry works.
When you roll up to the Mercedes Benz dealership do you think those vehicles on the lot are being sold to you directly from the Mercedes company in Germany? Although seemingly logical, it’s not quite that easy! Car dealerships actually have to purchase the vehicles (their stock) from the manufacturer before selling to you. JD Power explains the reason for this car dealer “middleman” in a few short words. Manufacturers don’t sell direct to consumer because, “in many states, auto companies are prohibited from doing that by law.”
So, the car manufacturer sells cars to dealerships who then sell cars to people (YOU!).
Side Note: Certain car companies are allowed to sell their cars directly to the public. One of these companies is Tesla, but it is classified as a tech company, so it’s a bit different!
Unsold or Slow-Selling Vehicles
It makes the most sense to categorize these vehicles that are not sold year after year as “unsold” – however in the car biz, they’re more commonly referred to as “slow-selling cars” (Let’s roll with it… It must make the cars feel better about not being selected).
Lauren Fix with Car Coach Reports gives us the scoop on what happens to these cars. There are a couple of routes the dealership can follow in order to remove this inventory from the lot.
- The dealership may offer a deal on the vehicle. When you see fantastic financing or really low interest rates offered for a certain model, that might be an indicator that the dealership is trying to get rid of the car. Offering a variety of financial incentives helps to bring these cars to the front of your mind while shopping.
- The dealership could offer sales incentives to salespeople. Sometimes referred to as spiffs or “sales performance incentive funds” – car dealerships offer short-term rewards or bonuses to salespeople who sell a certain model that they’re trying to move off their lots.
- The dealership can trade with other dealerships. This is fun – a little switcheroo between dealerships! Perhaps electric vehicles sell better in California, so they have more models in stock than Kansas. You, however, are in Kansas and want to purchase an electric car. If you’re lucky, the dealership in Kansas may already have planned to swap a vehicle they have on their lot for an electric car. In that case, everyone wins!
- The dealership could use the car as a loaner. So, next time you take your car in to get serviced and get a loaner vehicle – remember this might be all part of the big plan! If the dealership uses it as a loaner vehicle, they can sell it later as a “used” car.
- The dealership might bring the vehicles to an auction. However, the auction house will charge a fee or percentage of the sale to the dealership, so they won’t make as much money as if they sold it themselves. Definitely a good back-up plan though!
- The vehicles never get sold and live their life in a car graveyard. This happens more with manufacturers’ vehicles that don’t get sold to dealerships, but these car graveyards are abandoned parking lots filled with cars. However, another line of defense before getting to this point is to offer them at a discount to employees of the company. If that doesn’t work, off to the graveyard they go. RIP cars.
So, what did we learn? These dealerships want to “move the iron” and sell the vehicles they bought (or usually financed) from the manufacturer in order to avoid losses. Part of this game is “turning the inventory” or replacing older models with newer models because they’ll likely sell better. The car industry isn’t so different from other industries, their product is just a little bit bigger and harder to move or store if it’s not sold.