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

Steph Willems
by Steph Willems
amid rising inventories and falling sales dealers feel pressure to literally stake

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]

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  • SoCalMikester SoCalMikester on May 01, 2019

    prices are high, interest rates are going up, wages are stagnant. everyones already paying off their $1000 phone and unlimited data plan, and their triple play "bargain bundle" on their rent to own 70" flatscreen. gotta be able to eat out at least twice a day, too! not much money to spare any more for new cars with lousy credit :(

  • Cartunez Cartunez on May 06, 2019

    Too many people are screwed with negative equity and or poor credit to keep playing the buy a new car game.

  • 3SpeedAutomatic Drove a rental Cherokee for several days at the beginning of this year. Since the inventory of rental cars is still low, this was a 2020 model with 48k miles and V6. Ran fine, no gremlins, graphics display was easy to work, plenty of power, & very comfortable. Someone must of disarmed the lane assistance feature for the steering wheel never shook (YES!!!!!!!!). However, this woman's voice kept nagging me about the speed limit (what's new!?!?!?!).I was impressed enough to consider this a prime candidate to replace my 11 yr old Ford Escape. Might get a good deal with the close out of the model. Time will tell. 🚗🚗🚗
  • Bullnuke One wonders if this poor woman entered the US through Roxham Road...
  • Johnds Years ago I pulled over a vehicle from either Manitoba or Ontario in North Dakota for speeding. The license plates and drivers license did not come up on my dispatchers computer. The only option was to call their government. Being that it was 2 am, that wasn’t possible so they were given a warning.
  • BEPLA My own theory/question on the Mark VI:Had Lincoln used the longer sedan wheelbase on the coupe - by leaning the windshield back and pushing the dashboard & steering wheel rearward a bit - not built a sedan - and engineered the car for frameless side windows (those framed windows are clunky, look cheap, and add too many vertical lines in comparison to the previous Marks) - Would the VI have remained an attractive, aspirational object of desire?
  • VoGhost Another ICEbox? Pass. Where are you going to fill your oil addiction when all the gas stations disappear for lack of demand? I want a pickup that I can actually use for a few decades.