Amid Rising Inventories and Falling Sales, Dealers Feel Pressure to Literally Stake Out New Ground

Unlike components used in new vehicle assembly, the finished product is not shipped to the customer in a just-in-time manner. There’s usually a healthy amount of dealer-ready vehicles on hand, though recent months has seen inventories slide into obesity. Extended downtime and shift cuts at assembly plants are one result of a bloated supply made worse by falling U.S. sales (Fiat Chrysler’s Windsor Assembly is just the latest victim), but autoworkers aren’t the only ones bearing the brunt.

Figures from the beginning of April shows the inventory problem is only getting worse, with pressure growing on the dealers tasked with selling these vehicles.

According to the Automotive News Data Center, inventory stood at 4,188,200 vehicles on April 1st — the highest figure seen since July 2017 and perilously close to the all-time record set in 2004. Only 114,300 vehicles separates April’s tally from that high water mark.

More concerning for automakers is the fact it’s half a million more vehicles than seen just before the Great Recession. All of these vehicles require a home before their trip to the dealer lot, too; AN‘s Larry Vellequette took a flight over Toledo on the weekend, snapping shots of FCA vehicles lining what was once a harness racing track.

The pressures facing dealers are many. Slumping new car sales, the trend towards reduced incentives to protect automakers’ bottom lines, and rising floorplan interest rates are sapping dealers of cash flow, leaving servicing to turn a profit. The need to store vehicles off-site is another growing expense. Your author noted a field of Kias in the middle of nowhere while driving to an Easter dinner last week.

“Right now, there’s excessive inventory out there, and there’s a tremendous amount of pressure from almost all the brands to take additional cars,” David Hult, CEO of Asbury Automotive Group Inc. (America’s seventh-largest dealer group), told AN.

Hult said his group’s floorplan costs grew from $6.6 million to $10.2 million in the first quarter of this year, with two-thirds of the increase stemming from a vehicle supply that grew by 27 days’ worth. The rest of the cost increase arises from floorplan interest rates that now average more than 5 percent — a sharp and unwanted increase from recent years. Like many others, Hult is considering off-site storage.

“Space is absolutely an issue, and we’re bursting at the seams,” he said.

More vehicles in a dealer’s inventory and a slower turnover rate would mean more paid in interest, even if floorplan rates stayed static. Of course, they aren’t. And a longer wait to unload certain vehicles means potentially losing the manufacturer’s floorplan subsidy, hurting profitability further.

“You can afford to make a lot of mistakes when your floorplan interest rate is only 1.5 or 2 percent, but the room for error grows a lot tighter when you’re paying 5 or 5.5 percent,” said Marc Ray, co-owner of a company that operates a pair of Toledo Chrysler-Jeep-Dodge-Ram dealerships. Ray added that his carrying costs rose half a million dollars in the past year.

Of the bloated overall inventory, General Motors, Ford, and FCA make up more than half the tally, and, depending on the brands sold, manufacturer pressure on dealers can be intense and frustrating. Promises can prove fickle.

“I have so many vehicles, I stopped accepting deliveries,” an overwhelmed (and anonymous) FCA dealer in metro Detroit told AN. “First they told us to order [Dodge] Durangos because they were going to put extra support on them, so we stocked up, but the support never came. Then they stuffed us full of [Jeep] Compasses. Then they told us that in order to get [Jeep] Gladiator allocation, we had to order Ram pickups, so now I’ve got those coming out my ears.”

[Image: Janon Stock/Shutterstock, Fiat Chrysler Automobiles]