The current shortage of used cars is a blessing in disguise

April 5, 2010

Today it is no secret that sourcing the right cars for the right money is the greatest challenge for any used car operation. In spite of its difficulty, I contend that it is also one of the greatest blessings. Why is this so? Let’s examine this conclusion by first investigating the origin of the problem.

While I understand the perception that the right cars cannot be purchased for the right money, I wholeheartedly disagree. The problem is simply that we never knew how good we had it. In the past trade-ins were plentiful as a result of the high volume of new car sales, and cars at the auction were in abundance. Now that trade-ins are curtailed and supplies at the auction are down dramatically, the only way that most used car operators knew to get vehicles has been largely taken away. Of course therefore, traditional used car operators perceive the inability to get the right cars for the right money.

The reason that the current condition is actually a blessing, albeit in disguise, is that it’s forcing the used car industry to recognize the outstanding new technologies and conditions that will transform the nature of the industry.  Historically, used car operations have been extensions of new car franchises.  The types of vehicles stocked and sold have been predominantly common garden varieties of usual trade-ins and used versions of the dealership’s franchise brand. Relative to the larger used car market the franchise dealer’s opportunity has traditionally been a sliver of its full potential. 

Today, two significant conditions exist that allow a dealer to remove the shackles and limitations of the past and move to a new paradigm that can exploit the much larger potential in the current marketplace. I call this new paradigm “free agency.” 

The first of these conditions is the Internet search engine. Before the Internet, consumers would likely visit a dealership which held the new car franchise for the used brand that they desired to purchase. Today, the consumers will search the Internet to find a selection of vehicles of the type that they desire. It’s important to note that Internet search engines return results largely if not entirely without regard to the dealership’s new car franchise brand. This means that any dealer can efficiently and easily source a buyer for any hot used vehicle.

The second new condition is the availability of technology that can identify the hottest used vehicles in any market with an exact description of its required year, make, model, trim, and meaningful equipment. Prior to such technology, used car operators could only guess about such hot used vehicles and to that extent their guess included a limited set of vehicles and ones that were also obvious to most every other competitor. This meant that a disproportionate amount of wholesale buyers were chasing the same vehicles and consequently their values were inflated. With today’s new technology however, early adopters have the ability to identify hot vehicles, with many of them being much less obvious to surrounding competing used car operators. When an individual or company has relevant information about what’s hot in the market and that information is not commonly shared among its competitors, this constitutes true advantage. Such lesser understood hot vehicles aren’t necessarily easy to buy for the right money, but rather much easier to buy. 

Recognizing the opportunity that the Internet and such new sourcing technology holds is currently allowing some used car operators to reinvent their businesses into ones that are much larger and profitable while their traditional competitors are left wondering what to do.