Is Your Dealership Ready for Used Car Market Deflation?

by | Jun 28, 2021

Why and When it Started:
Closing the end of 2020, semiconductors suddenly faced a shortage due to consumer demand brought on by the pandemic. As consumer spending fell, demand for chips and other heavy electronics rose as people began relying on virtual means of doing business. The companies building these devices sent a ripple through the supply chain which was overwhelming for the chip manufacturers. The obvious reaction would be to make more chips, increase investments, and expand manufacturing. However, these changes cannot be expected until the end of 2022.

Expecting A Collapse:
While dealers are still struggling to keep new inventory on the lot, used car prices have significantly increased. Dealers are paying premium prices for used vehicles to keep a decent selection of inventory on the lot. The inflation of used car prices at this moment in time is beneficial to people selling their vehicles and for dealers that are struggling with inventory shortages. With used car prices increasing 54% since last year (according to Forbes), we have to expect it to fall back down dramatically in the near future. This could bring financial consequences to many dealers who bought vehicles during times when prices were inflated, especially if those vehicles aren’t sold before the used market inevitably decreases. We’ve spoken to a number of dealers that stated auction prices seem to be flattening or even dropping for the first time in months. This could be an indication of decreased consumer demand as well. Could we be expecting a collapse sooner than 2022?

How We Are Bracing Dealers for Impact:
Dealers need to be ready to get rid of the items they had to overpay for before it’s too late and prices on used vehicles begin to drop. You wouldn’t want to sell a vehicle for less than what you paid for it. We want to help your dealership avoid the financial hit. Not only do we want to help you grow your used inventory while prices are still high, but we also want to help increase your sell rate for those vehicles to minimize the financial impact it could have on your store. Upon further research, we also found that now is a great time to focus on service as well. Since there is a shortage of new inventory, people are driving their current vehicles for much longer. The average age of vehicles on the road in the US right now is 12 years old (according to bloomberg) meaning that it is a critical time to market servicing to consumers.

The Marketing Model:
Let’s face it. There is still money to be made on used inventory right now. We recommend running custom creative trade campaigns targeting specific people with your preferred inventory in mind. In addition, the majority of your budget should be geared towards selling what used inventory you have, assuming you are a dealer that is struggling to maintain new inventory. We like to see a high turnover rate of the used vehicles on your lot so that we don’t see the value depreciate when the used market collapses. Dealer OMG has consistently been the leading source of returning traffic to dealership sites by showing consumers relevant and enticing ads and keeping in-market shoppers engaged. Service focus is also a great approach because not only does this bring the consumer to the lot, but it gets their gears turning and potentially puts them in a position to think about replacing their vehicle.