What happens to unsold cars? Is there a way to save money by purchasing a car that the dealership can’t sell? Are unsold new cars available at an auto auction? To discover the answers to these questions and more, keep on reading!
In the United States, the auto industry accounts for 3% of the country’s gross domestic product. Over 1 million cars are sold every single month. Around 73% of these are pickup trucks or SUVs, with the other 27% being passenger cars.The average car dealership will sell over 1,000 vehicles each month, with around 279 new vehicles added to their website or lot. The average cost of a new car from a dealership is $38,723 and climbing.
What Happens to Unsold Cars?
To understand what happens to unsold cars, we need to consider the auto industry as a whole. There are generally 3 main steps: the manufacturer, the dealership, and the customer. Sometimes, you’ll find an additional step between the dealership and the customer, but this is rarer for new cars.
When you drive past a dealership and see a car in the lot, that car already belongs to the dealership instead of the manufacturer. The manufacturer can’t sell directly to the customer (it’s illegal in the US), so they sell to dealership franchises.
Unsold cars aren’t actually “unsold.” A better description for them would be ‘not selling cars’ or ‘slow-selling cars.’ The dealership owns them, and so if the car doesn’t sell as quickly as they would like, they must find a way to make it sell.
They can’t send it back to the manufacturer, so these cars present two main problems to dealerships: Firstly, they take up physical space in the lot, meaning that there is less space for newer, faster-selling cars.
Secondly, many dealerships don’t outright buy cars from the manufacturer. They finance the car, meaning that monthly installments are made (with interest) until the car is paid off. The quicker the car sells, the less interest needs to be paid.
This means that the longer a car sits in the lot, the more money the dealership loses. Eventually, the dealership needs to get rid of the car, even if it means losing potential profits or taking a loss.
Here lies the benefit of buying unsold cars rather than a recently released, full-price model!
The car market is an ever-expanding entity, and so there are always new franchises and dealerships popping up all over the country. Many larger towns will have multiple dealerships to choose from. Dealerships may offer unsold car inventory to smaller dealers for a reduced price.
Smaller dealerships may have local connections who would be interested in the car. They also have less inventory going in and out of the lot, meaning that the car can be displayed for a longer period without interfering with profits in the same way.
Franchises have one huge advantage over smaller dealers. They can transfer stock across the country. The United States is diverse, and car model popularity differs quite drastically from one area to the next.
We can look at car sales from 2020 as an example:
The Nissan Altima was the most popular car in 12 southern states, while the Chevrolet Malibu and Impala were the most popular cars in 12 northern states. The Honda Civic and Accord were the most popular on the East and West sides of the country.
Unsold car inventory can be sent to locations where that model is selling well. It’s not ideal, but it’s the most profitable option for dealerships.
When dealerships get desperate, they will begin dropping the prices of unsold cars. Getting an auto loan can be challenging, but the cheaper the car, the easier it will be to get the loan. Dealerships can offer upwards of 40% in some cases.
A new car that was $40,000 originally would only be $24,000 after such a discount. Granted, this level of discount is rare, but it does happen.
Dealerships that have cars from the previous year, such as a 2020 SUV, will grow increasingly desperate to get rid of them. Discounted pricing can only go so far before the dealership will explore other options.
An auto auction is exactly what it sounds like – an auction that sells cars. Dealerships view this as a last resort as the cars can sell for much less than the original asking price. But a percentage of the sale also goes to the auction house, adding to any loss.
Even if the car doesn’t sell, there is usually a fee involved. The dealership would be losing money without selling the car. Then they’re back to square one. But these types of auctions generally attract a crowd looking for a good deal, and since anyone can attend, cars do tend to sell.
Thanks to technology (and out of necessity during the pandemic), many auto auctions have moved online. This benefits the seller since more people are bidding from a larger area. But it also benefits the bidder as they can see a larger range of options.
Now that we’ve covered the basics of what happens to unsold cars, you now know the best places to check if you’re looking for a new car. Auto auctions are a great place to secure a deal, but you should also keep your eye out for heavily discounted dealership cars.
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