Tackling The Problem Of Older-Age New Vehicles

August 4, 2015

I’m seeing far too many 2014, even 2013, model-year new vehicles in dealers’ current inventories.

Yes, those cars. The ones nobody wants to talkmodel year end image about. The ones that mean tens, if not hundreds, of thousands of dollars in unproductive capital for many dealers.

In my time as a dealer, it was pretty rare to carry last year’s cars. With Cadillac, we could count on fall incentives to help us clean out our inventories. We generally considered it a failure if we hadn’t eliminated all prior-year vehicles by January 1st.

It’s unfortunate those days appear to be long gone.

Dealers offer several reasons for keeping these cars—their factory partner sent a dud, they got it wrong when they ordered or they simply can’t find a buyer.

There are other factors that contribute to aging new vehicles. Factories introduce new-year models at different times during the year, not just in the fall. In addition, factories use incentives throughout the year to achieve their market share objectives, not necessarily a dealer’s need to clear out prior-year units. The end result: The responsibility to mind and manage older-age new vehicle inventory increasingly fall’s on the dealer’s shoulders.

Interestingly, however, dealers don’t seem concerned that the presence of older-age new vehicles is hurting their performance and profitability. Some believe that, unlike used vehicles, new cars do not depreciate. If you follow this thinking, a 300-day-old new vehicle is as appealing and fresh as the same vehicle that just came off the hauler.

When I take a closer look at these older units, I often find they are priced the same as newer units—a sign that the dealer is banking on finding a buyer willing to pay up to own the older car. But I have to ask: In this day and age of ever-greater pricing and product transparency, does anyone really believe such buyers exist?

Some dealers recognize that older-age new vehicles poses the same problem as old-age used vehicle inventory. As time goes on, these vehicles become less and less appealing to buyers, and their ability to deliver a sufficient return on investment diminishes at the same or greater rate.

When I mention this dynamic to dealers, some disagree. “Dale, you’re wrong,” they’ll say. “New cars don’t spoil like used cars.”

On some level, these dealers are correct. In today’s market, the prime retail window for used vehicles is 45 days or less. One could make a case that the shelf life for new vehicles is twice as long.

But even by this standard, you really can’t argue that a 2014 unit has little luster as a new vehicle to today’s buyers—and it’s unquestionably counter-productive from the dealer’s investment perspective.

My advice: Stop hoping for the buyers who probably won’t come. Price your 2014 and older vehicles to retail right away. Take the loss today, if necessary, and accept it as a lesson learned to shape a more profitable tomorrow.