We have all been impacted by dwindling inventory in today’s market. While profits still remain high for many, what we are experiencing may be more disruptive than predicted. Joining us today to share his insight on what’s happening in retail automotive is Dale Pollak, founder of vAuto and Executive Vice President at Cox Automotive.
Pollak begins the conversation by giving his assessment of the current inventory situation and how it’s impacting car dealerships across the country. He says it’s interesting. New car inventory is at all-time low levels, yet dealers still bring in strong profitability. Pollak says that’s because they have a lot of pricing power for the vehicles they do have on their lot both new and used. In certain aspects, it’s the best of times, then other aspects, it’s the worse of times.
One of the differences Pollak sees in the situation right now versus the traditional selldown season is we’re experiencing an unprecedented rise in wholesale prices. He suspects very soon the retail price will be soon to follow. Other than August of 2017, they have never seen wholesale prices rise in August, yet they did this year. In light of Hurricane Ida, he suspects wholesale prices rise will continue throughout the end of the year. He also says prices of used cars generally do not depreciate and certainly not in the fall but that’s exactly what’s happening right now.
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In many respects, this inventory crunch has been a good problem to have for dealerships and OEMs, most of which are making record profits. Pollak says we don’t need to have a large inventory to make large profits. The industry has certainly learned the lesson that you can still sell cars and make money by not overproducing.
Pollak says the best thing that can happen is that everyone gets vaccinated and that will put a lid on this virus. He thinks until we are willing to follow the science and take the vaccine, we’re going to continue to spread infections. Much of the supply problems that we’re experiencing in the industry are arrows point towards the supply chain disruption. He says it’s the industry and government that needs to see that the greatest cost to society is the fear of the vaccine, and until a substantial amount of people get the vaccine, we won’t recover from it.
Through Cox, Pollak says, their form of thinking is formulated through a lot of data analysis. He predicts we’ll see wholesale prices rise, perhaps through the end of this year into the first half of next year. Currently, in the second half of next year, he says, we’ll see an accelerated decline of wholesale prices for used vehicles. He believes the reason is because of the possibility, by mid-year, next year, we’ll see new car inventory return. His advice to dealers is that cars in the wholesale market are probably cheaper today than they will be tomorrow and for that reason, he says to relax. He doesn’t expect to see new car inventory pre-pandemic levels but anything at this point would be an improvement.
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