From top-of-the-line brand new cars to reliable used ones, most dealerships have extensive inventories and offer a wide variety of vehicles for Canadian consumers to choose from. But what happens when they can’t sell all of their stock? What do they do with unsold cars? More importantly, how can you capitalize on the need for dealerships to clear out their old inventory and get the best deal on a car?
Key Points
- Dealerships can deal with unsold cars in a number of ways, including offering incentives and rebates, moving them to other dealerships, reducing their price, or donating them.
- Car buyers can get a good deal on a vehicle when dealerships are stuck with inventory that doesn’t sell.
- One of the best times to look for a car to get a good deal is near the end of the year when dealerships reduce the current year’s model price.
How Does A Car Dealership Function?
Like many businesses in Canada, most dealerships are built to be franchises. Commonly known as a “floor plan”, these locations work directly with various vehicle manufacturing companies by buying up their new stock and reselling it at a higher cost, which is one of the most effective ways for them to make money.
Dealerships & Manufacturers: Working Together To Sell Cars
If you’re thinking about leasing or purchasing any kind of vehicle, it’s essential to remember that dealerships must turn a profit to remain in business. As such, they are going to try and sell off their inventory for more than it was initially priced when it left the factory. However, they’ll have to buy all these vehicles before they can actually sell them.
Typically, the process goes something like this:
- Purchase Inventory: Similar to traditional in-house financing, dealerships often use loans to purchase an assortment of vehicles from the manufacturer, who are usually the ones to finance the loan.
- Dealerships Assume Responsibility Of Newly Purchased Vehicles: After they’ve been bought, any cars, trucks, vans, or SUVs will become the dealership’s responsibility. That said, it’s in the manufacturer’s best interest for said dealership to sell the vehicles in the highest volumes possible.
- Manufacturers Provide Some Assistance To Move Inventory: The manufacturer will then help the dealership in whatever way they can, such as funding their marketing campaigns, offering customers special leasing or financing terms, and any other incentives that might move some inventory.
- Inventory Is Sold To Make Room For New Inventory: If a particular vehicle is marketed well or has many features that buyers find attractive, the hope is that the dealership showroom and parking lot will be cleared by the time the next generation of vehicles is produced.
- Alternative Solutions Are Used To Move Unsold Inventory: Unfortunately for the dealership, they may have to look into other solutions for any vehicles that they don’t manage to get sold, which can be tedious, time-consuming, and result in them losing a significant portion of their proceeds.
What Are Some Reasons Why Cars Don’t Sell?
There are several reasons why dealerships deal with a slew of unsold vehicles from time to time, including the following:
- Model Becoming Obsolete: As the year progresses, new models are introduced, and eventually, the older models are overshadowed.
- Market Demand: Some vehicles simply don’t generate the type of demand needed to sell at a decent pace.
- Poor Pricing: Sometimes, vehicles may be perceived as priced too high, in which case car buyers may think they’re not getting enough bang for their buck.
- Unusual Colour: Certain colours may not be considered as desirable to buyers, which may cause them to sit on the lot much longer.
- Overstock: Dealerships may sometimes overestimate how many vehicle models to order for their lot.
Can Dealerships Send Unsold Vehicles Back To The Manufacturer?
Once they’ve purchased the vehicles outright, dealerships are more or less stuck with them until they can find prospective drivers to take them home. Simply put, these cars cannot be sold back to the companies that produced them.
The only exception would be in the case of lease-returns, depending on the agreement. In this case, the dealership didn’t fully purchase the undesirable cars and may ship them back to the manufacturer, where they would be put up for auction and ideally resold at a minimal loss.
What Do Dealerships Do With Unsold Cars?
Just like the manufacturer, dealerships need to reduce as much liability as they can when it comes to their unsold vehicles, in which case they have several options:
Ship Them to a Different Market
If a make, brand, or model isn’t selling well in a particular region of the country, the dealership may send their remaining inventory to one of their other branches. For instance, pick-up trucks and SUVs are generally more popular in rural areas, whereas smaller, more fuel-efficient models are better for city life.
Auction Them Off
There are plenty of auction houses across the country that will take in most new or slightly used vehicles, especially luxury models. The biggest drawback is that the dealership will probably have to sell their vehicles for much less than they paid for them. Plus, there are fees associated with the auction process.
Rent Them to Customers
Every car, regardless of the year or mileage, is going to need servicing and repairs from time to time, which is great when you can get it done for no or minimal cost at the dealership garage. Since some maintenance can take a few days, dealerships may keep a few vehicles on hand and let returning clients borrow them to get around temporarily while they wait for their cars to be fixed.
Provide Financial Incentives
Manufacturers often advertise financial incentives to car dealerships to help them move unsold inventory. Such incentives may include rebates, cash back offers, or low-rate financing deals that can be passed on to consumers.
Sell Them For A Lower Price
If the dealership really can’t make a profit on their vehicles, they can always sell them for reduced prices at the end of the year when the new models are rolling in. While this likely means they’ll be operating at a loss, they’ll be able to make room for more inventory and potentially earn some of their money back by selling warranties and other incentives.
Lease Unsold Cars
Dealerships may consider putting their unsold inventory into a leasing program, which allows customers to drive a new car for a few years without having to commit to a long-term purchase. This way, dealerships can still generate revenue on vehicles that would otherwise remain unsold.
Donate Unsold Cars
Dealerships can also consider donating unsold vehicles to charities and supporting local communities. Not only do others benefit from a car donation, but dealerships can also use these donations as a tax deduction when filing their taxes.
Scrap Them
Although it’s rare, the final resort a dealership can take is to sell their unsold vehicles to a scrapyard. Of course, this would be the least appealing and cost-effective option, especially if the vehicles are relatively new. However, used car dealers may benefit from this by getting rid of older, less valuable models.
How Can Customers Get The Best Deals?
As mentioned, one tactic that dealerships will use to push their unsold vehicles is to sell them as the previous year’s models, which works particularly well when it’s just before or after the new ones hit the showroom floor. This is one of the best times for car buyers to look for a vehicle, as deals may be available.
Many experts speculate that the best months to purchase a recent or lightly used vehicle would be between August and December. Negotiation is also key here, since many dealers are willing to adjust their prices if it means they can make a sale. They may even throw in extra perks to reel in prospective customers, such as extended warranties, customizable payment plans, upgrades, and other appealing features.
Final Thoughts
Unsold cars are simply a part of every car dealership’s challenges. Thankfully, there are plenty of things dealerships can do to offload their unsold inventory. The upside of this is that car buyers may be able to use unsold inventory as leverage to get a good deal on a car purchase. This is particularly true closer to the end of the year when dealerships make an effort to move unsold cars to make room for new models.
