Should Dealers Level Up New Car Inventory Right Now?

Due to the coronavirus isolation orders and a sudden shutdown of the American economy, early April predictions were for a serious downturn in car sales. Fortunately, rather than a 70 percent reduction in car sales, it appears that car sales will have been cut in half – a modest success story during troubled times.

And now management in franchised auto dealers needs to make a tough call. Do they freeze all new car shipments until the economy improves, or is there good reason to keep the taps flowing?

Brian Finkelmeyer, Senior Director of New Car Solutions for vAuto, Inc., weighed in on this subject with CBT News host Jim Fitzpatrick.

The Market Isn’t as Quiet as It Seems

Brian Finkelmeyer notes that a vast number of Americans are ready to buy a new vehicle. “One of our Cox Auto studies showed that something like 38 percent of car buyers said that they’d be willing to make a car purchase in the near future if the deal was right and I think for many, those deals are looking just about right. That’s partly what’s helping to prop us up as we work our way through this absolutely horrible situation.”

At 38 percent of those surveyed responding positively, dealers have a massive audience to market towards. Those numbers are most certainly regional with southern areas like Texas less affected by COVID-19 and major metropolitan areas like Los Angeles and New York City still reeling.

Related: 0% Interest, No Money Down: How Aggressive Financing Props Up in a Pandemic

Inventory Levels Will Likely Suffer

OEMs have had factories shut down worldwide for long stretches, and American carmakers are just beginning to think about going back to work at building vehicles. And while inventory levels are sufficient at the moment, Finkelmeyer believes it could take months before they get back to full capacity.

“What are the chances with the global supply chain I think there’s major questions about whether the major car companies can turn the spigot back on that fast We’re probably looking at three to six months before you’re going to resume your normal flow of inventory. You might need that much just to get to the other side of this crisis.”

It’s unclear currently just how long car sales will be suppressed. But if they spring back sooner than forecasted – like April’s numbers – it’s easy to see how a dealer could be left with an inventory shortage.

Incentives Are Available 

According to Finkelmeyer, dealers have responded to the downturn either by reflecting on the math and saying, “I don’t need a whole 175-day supply of cars,” and stopping new shipments, or by keeping the inventory coming in full force. He trusts that the dealers who have faith in the industry’s resilience are going to come out on the winning end.

“Obviously the OEMS are layering in these aggressive incentives but then you could put turbo gasoline on top of that if the government comes out with Cash for Clunkers 2 or some sort of stimulus aimed at the auto industry. You could see things turn very rapidly this summer.

“I really do believe in three things one of which is the resilience of the American consumer, I believe in American politicians willingness to throw lots of money at the problem, and last but not least, I believe in the American car dealers’ ability to figure it out and to survive and adapt and figure out a way through this really, really challenging situation.”

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Car Biz Today, the official resource of the retail automotive industry.