Running out of cars

January 28, 2009

While the herd of old-school buyers have been on a feeding frenzy, there has been a minority of dealers watching from the sidelines in amazement.  They are now wondering how long the frothy wholesale buying mentality can last.  Below you’ll find examples of a few such dealers and my advice.

Example 1:


I would appreciate your thoughts on the current wholesale values; your previous comments to Mike stated you predicted the market will take a down turn in the near future.

My questions are this.

Do you still believe the market will drop and if so how soon?

Do you think values will be comparable to fall 08(how far)?

Personally I am taken back by how fast the market is rising, and am a bit concerned that the retail market won’t support the current whole sale values.

I am going to be forced to pay current market right now as we are running out of inventory in some segments. This is a happy problem! Having been in this situation before, I don’t want to sacrifice too much gross as our sales team and customer get adjusted to new and improved prices.

Your feed back is important to me as I decide how to  play the next couple of months either extremely close to the vest for the next bit of time or buy a little deeper if cost are going to continue to climb.

Example 2:

Hi Dale,

I hope you can find the time to take a look at this. Im really struggling with trying to get enough inventory to move the needle here at Grossman. If you take a look at our inventory in vAuto its pretty quick to see we have the process down in as far as aging, pricing to market etc. Its also pretty easy to see that at over 12 turns a year with business the way it is and being January in Minnesota we are at a severe lack of product.

We have been racking our brains on how we can tick the number of units up to 130-150 to see how it can help our volume and consequently gross. The new car business makes it very difficult to get the number of trades we used to experience and buying cars just for the sake of buying cars is certainly not the answer either.

Any suggestions on how we could get the 30-50 additional cars we need would be appreciated, I value your experience and expertise Dale.

My response:

Thanks for your note and welcome to the elite class of used car managers who understand that the true value of the used vehicle isn’t determined by the “herd mentality” in the auction lane.  Let’s start with an understanding as to why you and some other smart managers are finding it difficult to buy vehicles.  It’s not because the cars aren’t available at the auction, it’s because you know something that the herd doesn’t.  You know the retail market and they don’t.  They continue to believe that what a vehicle will bring at retail is driven by what they are willing to pay wholesale. This is an outdated and erroneous assumption.  You know the retail market as a result of managing your business over the last year according to the vAuto philosophy. 

When the herd is willing to pay $13,000 for ’08 Impala’s I refuse to believe that they are worth it until I see those vehicles selling at retail for $15,000.  I can’t see any signs in our current economy that suggests that retail consumers will be flocking to car dealerships.  In fact, news reports suggest that fewer and fewer consumers will be buying vehicles in the coming 6 months, both new and used.  As a result, I’m fairly certain that those dealers that have paid high prices in the last few weeks will find themselves with inventory that will be hard to move.  As many dealers tend to do, they’ll refuse to address their mistakes in a timely fashion and these vehicles will depreciate as they age.  In my opinion, this will spell trouble that will surface in just a few months. 

Already, I think that we’re beginning to see signs of softening in the wholesale marketplace.  Smart buyers are reporting that if they just wait until the afternoon, they can buy the same vehicles in the lane for thousands less than they were bringing earlier that day.  In other words, I think that guys came back from the holidays with an empty belly and big appetite and now they are going to take a rest and try and digest what they’ve consumed.  I believe that you have been wise in exercising restraint, and now in the coming weeks you should find it a bit easier to acquire merchandise at a sensible price.  Please continue to be patient, pick and choose your spots and buy lightly for the time being.  Remember the fundamentals that high wholesale prices cannot continue unless it is based on strong retail demand.  I believe that the coming weeks and months will prove out this fact.