So what are those people thinking now that paid too much money for their vehicles?

February 18, 2009

Lately I have seen letters circulating suggesting that in light of future vehicle shortages, dealers should hoard inventory and relax age limit policies.  It is my firm belief that these strategies are wrong and extremely dangerous.  First, it’s important to understand the appeal of this message.  It is always easier to remove disciplines than to enforce them.  Further, the suggestion to hoard vehicles and relax aging policies is particularly appealing to those that paid extremely high prices for vehicles in the recent weeks.  Their only salvation is to hold on and hope that their recent purchases appreciate in value as a result of an anticipated future shortage.  If the shortage that they predict actually occurs, it’s possible that their acquisitions may in fact appreciate.  What they fail to realize, however, is that by holding on to their merchandise they miss the opportunity to make current sales and keep their investment dollars turning.  Essentially they are foregoing sales today in the hopes of making a sale in the future.  This strategy completely ignores the cost of capital, opportunity costs and essentially, puts those used vehicle operations in the business of speculation.  I strongly urge you to reject the appeal of this strategy and realize that its advocacy is put forth in the self-serving interest of dealers that have paid too much for vehicles and/or solution providers that have led them to this result.

Resist temptation to pay extraordinarily high prices for vehicles just because the herd is doing so.  Rather, purchase vehicles for amounts that will allow you to put a respectable profit on top of your acquisition price and still position the vehicle in the lower range of its current competition in the market.  If it means that you can’t buy a vehicle that way, then let it go.  Otherwise you will be forced to adopt the hold and hope approach described above.  It is a far better problem to be light on inventory that is owned right and current than to be heavy and long on inventory waiting for the market to come around.